Firms grow both organically and through acquisitions for several strategic and financial reasons. Strategically, firms seek to achieve economies of scale, improve market power, and diversify risks. Financially, growth can improve profits and shareholder returns. Firms may integrate horizontally within their industry, vertically along the supply chain, or diversify into unrelated businesses. Both large and small companies pursue organic expansion by developing new products and entering new markets.
Ansoff's Matrix is a classic model of marketing and business strategy that business students can use very effectively in their exams. This revision presentation outlines the key features of the model.
Ansoff's Matrix is a classic model of marketing and business strategy that business students can use very effectively in their exams. This revision presentation outlines the key features of the model.
Collaboration is not an option. Everything is available to everyone. Your business needs strategies for competitive advantage. This presentation helps you to start thinking in the direction.
Slides from my class on "Business Model and Strategy" in the Strategy MBA course at Aarhus BSS, Aarhus University (Sep 2014).
Key takeaways:
- business model describes the essence of business in simple terms;
- business model is different from and complementary to strategy;
- business model affects firm’s performance.
What is a Strategy? Michael Porter - Harvard Business ReviewDonny Sitompul
What is Strategy
Operational Effectiveness Is Not Strategy
Strategy Rests on Unique Activities
A Sustainable Strategic Position Requires Trade-offs
Fit Drives Both Competitive Advantage and Sustainability
Rediscovering Strategy
Porter's Generic Strategies with examplesdipalij07
This Presentation is containing brief description of generic strategies with examples of companies in detail....
Hope it will be helpful to everybody....
Enjoy...!! :)
When an organization adopts a strategy which requires taking of those activities which are unrelated to the existing businesses definition of one or more of its businesses either in terms of their respective customer groups, customer functions or alternative technologies, it is called conglomerate diversification.
Porter's Five Forces Model - Analysing Competitontutor2u
Porter's Five Forces model is a popular analytical framework for assessing the nature of competition in a market. This presentation provides an overview of the model.
This revision presentation considers the variety of stakeholders impacted by business activity. How will a change in objectives, such as a move from profit maximisation to revenue maximisation have an effect on different stakeholders?
Students should be able to:
Understand the distinction between normal and supernormal profit
Explain and illustrate the concept of profit maximisation using marginal cost and marginal revenue
Students should be able to:
Identify economies and diseconomies of scale.
Students must be able to distinguish and give examples of internal and external economies and diseconomies of scale.
Collaboration is not an option. Everything is available to everyone. Your business needs strategies for competitive advantage. This presentation helps you to start thinking in the direction.
Slides from my class on "Business Model and Strategy" in the Strategy MBA course at Aarhus BSS, Aarhus University (Sep 2014).
Key takeaways:
- business model describes the essence of business in simple terms;
- business model is different from and complementary to strategy;
- business model affects firm’s performance.
What is a Strategy? Michael Porter - Harvard Business ReviewDonny Sitompul
What is Strategy
Operational Effectiveness Is Not Strategy
Strategy Rests on Unique Activities
A Sustainable Strategic Position Requires Trade-offs
Fit Drives Both Competitive Advantage and Sustainability
Rediscovering Strategy
Porter's Generic Strategies with examplesdipalij07
This Presentation is containing brief description of generic strategies with examples of companies in detail....
Hope it will be helpful to everybody....
Enjoy...!! :)
When an organization adopts a strategy which requires taking of those activities which are unrelated to the existing businesses definition of one or more of its businesses either in terms of their respective customer groups, customer functions or alternative technologies, it is called conglomerate diversification.
Porter's Five Forces Model - Analysing Competitontutor2u
Porter's Five Forces model is a popular analytical framework for assessing the nature of competition in a market. This presentation provides an overview of the model.
This revision presentation considers the variety of stakeholders impacted by business activity. How will a change in objectives, such as a move from profit maximisation to revenue maximisation have an effect on different stakeholders?
Students should be able to:
Understand the distinction between normal and supernormal profit
Explain and illustrate the concept of profit maximisation using marginal cost and marginal revenue
Students should be able to:
Identify economies and diseconomies of scale.
Students must be able to distinguish and give examples of internal and external economies and diseconomies of scale.
On June 23rd 2016 the UK voted in a referendum to leave the European Union.
Prime Minister David Cameron resigned the morning after the vote
A few weeks later, Theresa May was elected leader of the Conservative Party and new Prime Minister.
The terms of the UK’s new economic relationship with the EU remain uncertain.
Hard Brexit
Means that the United Kingdom leaves the EU Single Market and trades under World Trade Organization rules
Under WTO rules, each member must grant the same market access—including charging the same tariffs—to all other members as the most favoured nation
Soft Brexit
Involves the option of staying in the Single Market (like Norway)
As a member of the European Economic Area (EEA), Norway has a free trade agreement with the European Union, which means that there are no tariffs on trade between the two
This revision presentation provides an overview of the topic of emerging markets. It highlights some examples of how businesses have pursued a growth strategy in emerging markets and also how developed economies have seen investment coming in the opposite direction. A brief overview of the methods and benefits/drawbacks of international expansion is also provided.
IB Business and Management (Standard Level)
All material taken from the IB Business and Management Textbook:
"Business and Management", Paul Hoang, IBID Press, Victoria, 2007
Revisionstation: Edexcel GCSE Business 2.1.1 Business growth V2.pptxRevisionstation
Methods of business growth and their impact:
Internal (organic) growth: new products (innovation, research and development), new markets (through changing the marketing mix or taking advantage of technology and/or expanding overseas)
External (inorganic) growth: merger, takeover
The types of business ownership for growing businesses:
Public limited company (plc)
Sources of finance for growing and established businesses:
Internal sources: retained profit, selling assets
External sources: loan capital, share capital including stock market flotation (public limited companies)
Full Theme 2 pack available to buy on the Revisionstation site
In this revision presentation we look at recent trends in UK trade union membership, consider how trade unions can affect both pay and employment and challenge the textbook view that union-negotiated pay increases inevitably have negative consequences for employment.
In this revision presentation we cover key examples of pure and quasi public goods and consider the arguments for and against an increase in government spending on public goods.
Poverty Reduction Policies in Low Income Countriestutor2u
This revision presentation covers some of the main causes of continued high levels of extreme poverty in low and middle income countries and considers a range of pro-poor government interventions designed to increase productivity and regular employment and waged income in formal labour markets.
You don’t need to produce a lot of evidence in your macroeconomics exams but knowing some basic and key facts and figures can make your answers stand out from the crowd! Here is a quickfire journey through twenty important economic numbers that won’t change before the exam – use them to support your answer and impress the examiner!
Microeconomics - Great Applied Examples for Examstutor2u
In this presentation, I have chosen loads of current examples that you might want to use as context in your microeconomics exams. We look at examples from different market structures, recent mergers and takeovers, the world's most valuable companies, the largest employer, unicorn business, de-mergers, the biggest initial public offerings (IPOs) and much else. Hopefully a useful video to go through to add some super examples into your revision notes.
This revision presentation looks at profit satisficing as an alternative objective for businesses. Why might firms satisfice? What are some of the possible consequences for economic welfare and efficiency?
In this short revision video, we look at the substantial productivity gap between the UK and many of the UK’s major competitor countries.
Paul Krugman, the Nobel Prize-winning economist said twenty fives years ago that “Productivity isn’t everything, but in the long run it is almost everything,”
In this presentation we consider the theory of wage-setting with a monopsony employer and the possible impact that a trade union might have on wages and employment. We also look at efficiency wage theory and mutual gains from pay bargaining between stakeholders.
For many economists, the labour market is the most important market of all to study, analyse and evaluate. Like product markets for goods and services, labour markets can also fail. The main types of labour market failure are labour immobility including skills gaps, inequality, disincentives to be economically active, labour market discrimination and the effects of monopsony power of employers.
Updated revision presentation on aspects of behavioural economics and topical issues where behavioural nudges are being used to change the choices of consumers and businesses.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
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The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
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Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
2. Why and how do firms grow?
Topic 3.3.2
Students should be able to:
• Discuss how and why firms grow
• Distinguish between forward, vertical and conglomerate
integration, and know reasons for mergers/ takeovers.
• Know why some firms remain small and others grow
• Understand the reasons for demergers
3. Economies of Scale
(Lower Unit Costs)
Build and Sustain
Your Market Power
Improve Shareholder
Returns from higher
Operating Profits
Reduced the Risk of
Hostile Takeover
The Pursuit of
Managerial
Objectives
Synergy Effects – i.e.
from Bigger Sales
Platforms
Key Motivations for Business Growth
4. Motivations for Business Growth
• Profit motive:
– Businesses grow to provide better returns for shareholders
– Stock valuation is influenced by expectations of future sales and profits
• Cost motive:
– Economies of scale increase the productive capacity of the business
leading to lower average costs. They help to raise profit margins at a given
market price
• Market power motive:
– Firms may wish to increase market dominance giving them pricing power
– This power can be used as a barrier to entry in the long run
– Larger businesses can build and take advantage of monopsony power
• Risk motive:
– Diversification across products & markets helps to reduce investor risk
• Managerial motives:
– Managers whose objectives differ might accelerate business expansion
5. The Relentless (?) Growth of Facebook?
0
200
400
600
800
1000
1200
Q1
'11
Q3
'11
Q1
'12
Q3
'12
Q1
'13
Q3
'13
Q1
'14
Q3
'14
Q1
'15
Numberofusersinmillions
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Q4
'11
Q2
'12
Q4
'12
Q2
'13
Q4
'13
Q2
'14
Q4
'14
Q2
'15
RevenueinmillionU.S.dollars
Facebook continues to grow their base of active users – one of the key
business challenges for them is to turn these users into revenue generators
6. • Organic:
– Growth from “within the business” e.g. new products;
expansion into new markets
• External:
– Growth from takeovers & mergers
• Mergers and Takeovers
– Takeover: Where one business acquires a controlling
interest in another business = a change of ownership
– Merger: a combination of two previously separate
businesses into a new business
• Diversification: expanding into new markets with
new products – the riskiest growth strategy
Organic and External Growth
8. Prices Paid for Facebook’s Acquisitions
19,000
2,000
1,000 500 150 60 50 47.5 15 10 2.5
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
PriceinmillionU.S.dollars
Acquisition into virtual reality
March 2014 saw Facebook’s acquisition of
the makers of the virtual reality headset
Oculus Rift, which is launching its first
commercial product in January 2016
9. 1. Rapid technological change / creative destruction
in industries and markets
2. Need for economies of scale to remain cost and
price competitive in world markets
3. Need to be able to supply customers globally
4. Low demand growth in mature economies – need
to have a presence in faster-growing countries
5. Access to more distribution networks
6. Investment in faster-growing emerging markets
where per capita incomes are rising quickly
7. By-pass non-tariff barriers such as import quotas
Key Drivers of Mergers & Takeovers
10. What is the primary reason for the acquisitions you intend to initiate in
2015? (US Corporations only)
21
19
16
15
11
5
5
4
4
0 5 10 15 20 25
Opportunistic - target becomes available
Expand geographic reach
Expand customer base
Enter into new lines of business
Financial buyer looking for profitable…
Enhance intellectual property
Defend against competition
Invest in another function in the supply chain
Other
Share of respondents
Takeover Motivation – US Evidence
11. Strategic
motives
• Improve &
develop the
business
• Closely linked to
competitive
advantage
• E.g. economies
of scale
Financial
motives
• Make best use
of financial
resources for
shareholders
• Improve
financial
performance
• E.g. higher
profits
Managerial
motives
• Self-interest of
managers
• Not necessarily
in the best
interest of
shareholders
• E.g. want to
lead a bigger
business
Strategic Motives for Acquisitions
It is important to realise that many of the mergers and takeovers that hit the news
headlines are driven by managerial motives. Few minority shareholders have any influence
12. • Director rewards may be linked to growth
• Big takeovers attract media – boosts ego / reputation?
• Takeovers as “vanity projects” for CEOs and COOs
Personal ambition & financial reward
• Pressure to do takeovers (if competitors are too)
• Concern that firm may be being left behind
• Over-confidence of senior management (hubris)
• Pressure from advisers & the media (e.g. investment
bankers who stand to make millions from deals)
Bandwagon effect / peer pressure
Managerial Motives for Acquisitions
13. Takeover / merger Main motives for the transaction
Kraft / Cadbury
Establish global market leadership in confectionery & access
emerging markets (stronger growth potential), strategic fit
Google / Motorola
Acquire valuable smartphone patents & manufacturing
expertise
Tata / JLR
Economies of scale & acquire expertise, brands, capacity and
distribution
RBS / ABN-Amro
Management vanity and hubris; continue reputation for big
deals; over-confidence at the top of a speculative bubble, cheap
money
Santander / Abbey
Market entry (UK) & establish base for further acquisitions to
build market share in reformed financial system
WM Morrison &
Safeway
Increase market share & exploit economies of scale to improve
competitiveness
British Airways / Iberia
Consolidation; economies of scale & survival: positioning for
further takeovers
Motives for Acquisitions - Examples
14. Organic Business Growth
• Organic growth is also known as internal growth.
• It happens when a business expands its own
operations rather than relying on takeovers and
mergers. Organic growth can come about from:
1. Increasing existing production capacity through
investment in new capital & technology
2. Development & launch of new products
3. Finding new markets for example by exporting into
emerging countries such as India and South Africa
4. Growing a customer base through marketing
15. Organic Business Growth
Under Armour generates
turnover of around $2bn
per year and is
consistently growing at
over 20% per year. It is
doing this by expanding
the product range,
extending into retail
operations and pushing
into emerging markets
Under Armour
Whitbread owns Costa
Coffee and Premier Inn -
two brands that have
performed exceptionally
well despite the
economic downturn. The
company is Britain’s
biggest coffee shop
chain.
Whitbread
The Lego business has
never made an
acquisition. It focuses on
using new product
development and
innovation as the driver
of revenues and profits.
Since 2007, Lego has
tripled its revenues
globally
Lego
18. Number of Paying Spotify Subscribers
0.5 1 1.5
2.5 3
4
5
6
10
12.5
15
20
0
5
10
15
20
25
Jul '10 Mar '11 Jun '11 Nov '11 Jan '12 Aug '12 Dec '12 Mar '13 May '14 Nov '14 Jan '15 Jun '15
Payingsubscribersinmillions
20. Key Concepts – Business Growth
Backward vertical
integration
Acquiring a business operating earlier in
the supply chain – e.g. a retailer buys a
wholesaler, a brewer buys a hop farm
Conglomerate integration
A merger between firms that are
involved in unrelated business activities
Forward vertical
integration
Acquiring a business further up in the
supply chain – e.g. a vehicle
manufacturer buys a car parts distributor
Horizontal integration
When companies from the same industry
amalgamate - firms are at the same stage
of the production process
Internal (organic) growth
When a business gets larger by increasing
the scale of its own operations
21. Different Types of Business Integration
Backward vertical Forward vertical Horizontal
Lateral Conglomerate
The oil and gas industry is
deeply vertically integrated
Brewers own chains of pubs Two airlines merging is
horizontal integration
Major software companies
buying games developers
Minnesota Mining and
Manufacturing Company
22. Business Growth – Google Acquisitions
12,500
3,200
3,100
1,650
1,100
750
700
625
500
500
0 2000 4000 6000 8000 10000 12000 14000
Motorola Mobility (Aug 2011)
Nest Labs (Jan 2014)
DoubleClick (Apr 2007)
YouTube (Oct 2006)
Waze (Jun 2013)
AdMob (Nov 2009)
ITA Software (Jul 2010)
Postini (Jul 2007)
Skybox Imaging (Jun 2014)
DeepMind (Jan 2014)
Price of acquisition in million U.S. dollars
24. Acquisitions made by Alibaba
1,220
1,165
829
692
586
280
250
249
240
194
171
120
100
20
0 200 400 600 800 1000 1200 1400
Youku Tudou
AutoNavi Holdings
ChinaVision Media Group
Intime Retail
Weibo
TangoMe
Lyft
SingPost
Gooddaymart
Guangzhou Evergrande
CITIC 21CN
Kabam
TutorGroup
Beijing Byecity Technology Development
Value of stake in million U.S. dollars
Jack Ma – Founder of Alibaba
“Harvard rejected me 10 times”
25. • Horizontal Integration: Two businesses in the
same industry at the same stage of production
becoming one
• Some recent examples:
– Tata buying Jaguar Land Rover from Ford
– Volkswagen buying Porsche
– Asda buying Netto (food supermarkets)
– Amazon buying LoveFilm
– Virgin Money buying Northern Rock
– Suntory of Japan paid £1.35bn to buy
GlaxoSmithKline’s drinks brands Lucozade & Ribena
Horizontal Integration
26. Recent Examples of Horizontal Integration
• Dec 2015: Domino's buys largest German pizza chain in
$86m deal
• Dec 2015: US chemical giants DuPont and Dow Chemical Co
agree to merge in deal valuing combined company at £86bn,
with plans to split into three.
• Nov 2015: Pfizer's $150bn purchase of of Dublin-based
Allergan (the manufacturer of Botox products)
• Nov 2015: Marriott agrees $12bn merger with Sheraton
hotels owner to create one of world’s biggest hotel chains
• Nov 2015: AB InBev's £71bn bid for SABMiller
• Nov 2015: AstraZeneca agrees $2.7bn deal for US biotech
firm ZS Pharma
• 2015: Horizontal mergers in the betting industry: Ladbrokes
and Gala Coral, Betfair and Paddy Power and GVC and
Bwin.party
27. 1. Exploit internal economies of scale
2. Cost savings from the rationalization of the
business – often this involves big job losses
3. Potential to secure revenue “synergies”
4. Wider range of products - (i.e. diversification) –
creates opportunities for economies of scope
5. Reduces competition by removing key rivals –
this increases market share and pricing power
6. Buying a existing and well-known brand can be
cheaper than growing a brand – this can then
make the entry barriers higher for new rivals
Horizontal Integration - Advantages
28. Horizontal Integration – UK Cinemas
879
813
780
264
167
82
62
58
39
35
23
23
21
663
0 100 200 300 400 500 600 700 800 900 1000
Odeon
Cineworld
Vue
National Amusements
Empire Cinemas
Omniplex
Reel Cinemas
Cineworld/Picturehouse
Movie House Cinemas
Merlin Cinemas
Everyman Media Group
Light Cinemas
Curzon Cinemas
Others (19 major exhibitors and 290…
Screens
29. • Vertical integration is acquiring a business in the
same industry but at different stage of the
supply chain
• The merger of two firms at a different stage of
the same industry or process of production or
same final product
1. Forward vertical: Closer to the consumers e.g. a
manufacturer buying a retailer
2. Backward vertical: Closer to the raw materials in
the supply chain e.g. a manufacturer buying a raw
material supplier
Vertical Integration
30. • Film distributors owning cinemas + digital streaming
platforms
• Brewers owning/operating pubs (forward vertical)
or buying hop farms (backward vertical)
• Record labels and radio / online music stations
• Drinks manufacturers integrating with bottling
plants
• Pig processing business buying a pig farm
• Technology companies growing vertically through
hardware, software and services
– PayPal, acquired by eBay for $1.5bn in 2002
– Google buying Motorola, a phone maker
Vertical Integration - Examples
31. Recent Examples of Vertical Integration
• Nov 2015: Apple buys Star Wars motion-capture
company Faceshift
• Nov 2015: Ikea Buys Romanian, Baltic Forests to Control
Its Raw Materials
• Oct 2015: Oct 2015: Dell makes $67bn bet on EMC in
tech history's largest acquisition. US computer giant Dell
agrees to buy data storage company EMC
• Sept 2015: (Wholesaler) Booker given green light for
takeover deal worth £40m of Budgens and Londis
grocery chains
32. 1. Control of the supply chain – this helps to
reduce unit costs and improve the quality of
inputs into the production process
2. Improved access to key raw materials perhaps
at the expense of rival businesses (example?)
3. Better control over retail distribution channels +
adding new channels to your sales platforms
4. Removing suppliers and market intelligence
from competitors which then helps to make a
market less contestable (increases market
power)
Vertical Integration - Advantages
33. Conglomerates
• A conglomerate has a
large number of
diversified businesses.
• The world’ s biggest
conglomerates include
businesses such as
General Electric and
3M in the United States
and Siemens from
Germany
• Another is Samsung –
the electronics giant
also makes military
hardware, apartments,
ships and Samsung also
operates a Korean
amusement park!
253.5
107.1
105.1
97.7
81.6
60.1
59.8
50.3
47.6
43.2
27.7
21.2
20
17.9
16
0 50 100 150 200 250 300
General Electric (U.S.)
United Technologies (U.S.)
3M (U.S.)
Siemens (Germany)
Honeywell International (U.S.)
Danaher (U.S.)
Hutchison Whampoa (Hong Kong)
ABB (Switzerland)
CK Hutchison (Hong Kong)
Jardine Matheson (Hong Kong)
Philips (Netherlands)
Itaúsa (Brazil)
Swire Pacific (Hong Kong)
Ingersoll-Rand (Ireland)
Sime Darby (Malaysia)
Market value in billion U.S. dollars
World's largest conglomerates as of April 6, 2015, based on market
value (in billion U.S. dollars)
34. Why do many mergers/takeovers fail?
1. Huge financial costs of funding takeovers including deals that have relied
heavily on loan finance - this leaves a big debt overhang after the deal
2. Integrating systems – companies might have very different technology
systems that are expensive or impossible to marry e.g. eBay & Skype
3. Share price: The need to raise fresh equity through a rights issue to fund
a deal which can have a negative impact on a company's share price
4. Many mergers fail to enhance shareholder value because of clashes of
corporate cultures, priorities and personalities
5. The enlarged business may suffer a loss of customers and skilled workers
post acquisition
6. Paying too much: With the benefit of hindsight we see the ‘winners
curse’ - i.e. companies paying over the odds to take control of a business
7. Bad timing – mergers and takeovers that take place towards the end of a
sustained boom can often turn out to be damaging for both businesses.
35. • High cost involved in
the final acquisition
• Problems of valuation
• Clash of cultures
• Upset customers
• Problems of integration
(change management)
• Resistance from
employees
• Loss of good
employees
• Non-existent synergy
• Incompatibility of
management styles,
structures and culture
• Questionable motives
• Diseconomies of scale
Factors Behind Many Failed Mergers
The accepted data says that most mergers and acquisitions don’t work out. It is estimated
that the range for failure of mergers and takeovers is between 50% and 80%.
36. Factors behind survival of small firms
• The median profit of small & medium sized enterprises in the UK in
2014 was £8,000. Yet many small businesses survive and grow.
1. Many smaller businesses act as a supplier / sub-contractor to much
larger enterprises e.g. in the construction industry
2. They might take advantage of a low price elasticity of demand and high
income-elasticity for specialist ‘niche’ products which can be sold at a
higher price and with a bigger profit margin
3. Smaller businesses can avoid diseconomies of scale
4. Many smaller businesses run as lifestyle enterprises, their owners are
looking to achieve a satisfactory return rather than maximum profits
5. Small-scale businesses are often more innovative, flexible and nimble in
responding to changes in market demand conditions
6. Small businesses have benefitted from the rising percentage of
consumers willing to buy online – the barriers to entry in the market
have come down because of digital technology (e.g. tech start-ups)
37. Activist Shareholders
• Activist shareholders look to put intense pressure on existing
management or force through changes to management boards.
• Some insist on businesses using profits to buy-back shares to
increase returns to existing shareholders.
• An activist shareholder uses an equity stake to put pressure on its
existing management.
• The goals of activist shareholders range from financial (e.g.
increase of shareholder value through changes in dividend
decisions, plans for cost cutting or investment projects etc.) to
non-financial (e.g. dis-investment from particular countries with a
poor human rights record, or pressuring a business to speed up
the adoption of environmentally friendly policies and build a
better reputation for ethical behaviour, etc.)
38. • Joint ventures occur when businesses join
together to pursue a common project
• The businesses remain separate in legal terms
• Joint ventures are becoming common as firms
want to benefit from collaborative work in
reaching a mutually-agreed strategic target.
• An example might be joint-research projects to
share the fixed costs
Joint Ventures
39. • Vodafone & Telefónica agreed to share their mobile network
• BMW and Toyota co-operate on research into hydrogen fuel
cells, vehicle electrification and ultra- lightweight materials
• West Coast – joint venture between Virgin Rail & Stagecoach
• Google and NASA developing Google Earth
• Hollywood studios combining to fight internet piracy
• Alliances in airline industry e.g. Star Alliance and One World
• Renault-Nissan
• Docklands-Light Railway - a joint venture between French
transport group Keolis and infrastructure services provider
Amey, part of Spanish multinational Ferrovial.
Joint Ventures – Recent Examples
40. • When a firm decides to split into separate firms
• Some of the key motivations for de-merger include:
1. Focusing on core businesses to streamline costs and improve
profit margins
2. Reduce the risk of diseconomies of scale and diseconomies of
scope by reducing the range of functions in a business, and
achieve lower management costs
3. Raise money from asset sales and return to shareholders
4. A defensive tactic to avoid the attention of the competition
authorities who might be investigating possible monopoly
power in an industry / market
De-Mergers
41. • Fosters Group de-merging its two main operating divisions –
one focusing on beer, the other on wine
• US food giant Sara Lee sold off coffee business Douwe Egberts
• Qantas demerged their airline business and run stand-alone
domestic and international airline businesses
• News International demerged Film/TV & Publishing businesses
• Demerger of Clydesdale and Yorkshire banks
• Pfizer sold their infant nutrition business to Nestle
• Severn Trent Water demerged waste management Biffa
• PepsiCo demerged their food and drinks business by creating
Yum Brands (which owns KFC, Pizza Hut and Taco Bell)
• In 2015 Yum Brands announced a demerger to create two
separate businesses: Yum China and Yum Brands
De-Mergers – Recent Examples
42. News International DemergerFilmandTV
• Fox News
• 20th Century Fox
• Sky
• Fox Television
Publishing
• Dow Jones
• Wall Street Journal
• New York Post
• The Times
• The Sun
• Harper Collins