1. BY- A RAJ SHRAVANTHI
10-501-001

2. Introduction
 Factors important to the success or failure of a particular
entry move include economic principles apart from all human,
organizational, financial, legal and administrative factors.
 The economics of entry rests on some fundamental market
forces
 In economist’s sense-
 if these forces work perfectly= entry not possible
 Not working perfectly= entry possible

3. Methods of entry
 Entry through Internal Development
 Entry through Acquisition
 Sequenced entry

4. Entry through Internal Development
 Also called internal entrant
 It involves creation of new business entity in an
industry including new production capacity,
distribution relationships, sales force etc
 Joint venture

5. Advantages & Disadvantages of Joint ventures
Advantages
Disadvantages
 Acquire competencies or skills
 Partners do not have full control
not available in-house
of management
 When market needs to be
 May be impossible to recover
penetrated quickly, eg. when
competitive entry is imminent or capital invested
technological change is very  Disagreement on new export
rapid markets Partners may have
 Spread the risk of a large project
different views on expected
over more than one firm benefits .
 Enable faster entry and payback
 Avoid tariff barriers and satisfy
local content requirements

6. Entry Barriers
 2 entry barriers in an industry:
 Structural entry barriers (investment & start up
losses)
 Expected reaction of incumbent firm(eg: lowering
prices)

7. Various costs involved
 Investment costs – manufacturing facilities &
inventory
 Additional investment – brand identification &
proprietary technology
 Expected cost from incumbents’ retaliation – lower
prices & escalated marketing costs
 Expected cash flows from being in the industry

8. Factors often neglected in entry decisions
 Costs usually considered by internal entrants include- constructing manufacturing
facilities and assembling sales force
 Costs usually neglected – costs for overcoming SEB like brand franchise,
distribution channels tied up by competitors , competitors access to the most
favorable sources of raw material
 Entrants new capacity
 Impact of the probable reactions of existing firms
 shaving prices- entry by Georgia- pacific in gypsum industry disrupted prices
 Escalation in marketing activities, special promotions, extension of warranty terms,
easier credit & product quality improvements
 Excessive capacity expansion

9. Will retaliation occur?
Internal entry will harm future prospects in the following kinds of industries:
 Slow growing market- vigorous retaliation
 Commodity / commodity like products
 High fixed costs
 High industry concentration
 Incumbents who attach high strategic importance to their position in the
business- sharp retaliation.
 Attitudes of incumbent management

10. Identifying target industries for internal entry
 Industry in disequilibrium
 New industries
 Rising entry barriers
 Poor information
 Slow or ineffectual retaliation from incumbents may be expected (niche markets-
ice-creams)
 The firm has lower entry costs than other firms (eg: Nokia, general motors, John
Deere’s)
 The firm has distinctive ability to influence the industry structure (like good
distribution channel , good R & D)
 There will be positive effects on firms existing business ( ICICI BANK, Eaton
corporations)

11. Generic concepts for entry
 Reduce product/process costs
 entirely new tech- Nokia smart phones, apple i-pod
 larger plant reaping greater economies of scale
 modern facilities- mobiles
 Shared activities- network sharing idea-aircel
 Buy in with low price
 Offer a superior product , broadly defined
 Discover a new niche
 Introduce a marketing innovation
 Use piggybacked distribution

12. Entry through acquisition
 Market for companies
 The market is well organised, involving finders,
brokers and investment bankers
 Selling is by bidding
 Bidding price should be more than floor price
 Floor price=present value of continuing to operate
the business (gives owners premium for selling)

13. Acquisition is profitable, if:
 Floor price is low
 The market for companies is imperfect & does not
eliminate above- average returns through the
bidding process
 Buyer should have unique ability to operate the
acquired business

14. Floor price
 Floor price is low when seller feels the greatest
compulsion to sell, because:
 Seller has estate problems
 Seller needs capital quickly
 Has lost key magt / sees no successor
 Seller is not optimistic

15. Imperfections in the market for companies
Successful acquisition will occur, if:
 The buyer has superior information
 The number of bidders is low(unusual business or very
large business)
 The condition of economy is bad
 The selling company is sick
 The seller has objectives besides maximising the price
received for the business (hutch to vodafone)

16. Unique ability to operate the seller
 The buyer has a distinctive ability to improve the
operations of the seller(Campbell’s of Vlasic)
 The firm buys into an industry that meets the criteria
for internal development
 The acquisition will uniquely help a buyer’s position
in its existing business (Reynolds acquisition of Del
Monte)

17. Irrational bidders
 Bidding beyond the point of above-average returns
 Reasons for irrational bidders:
o The bidder sees a unique way to improve the
acquisition target
o The acquisition will help the bidders existing
business
o Bidders have goals other than profit max^n

18. Types Of Acquisitions
 Friendly takeover/negotiated takeover
 Hostile Takeover
 Leveraged Buyouts
 Bailout Takeovers

19.  Friendly takeover:
Also commonly referred to as ‘negotiated takeover’, a friendly takeover involves an
acquisition of the target company through negotiations between the existing promoters and
prospective investors. This kind of takeover is resorted to further some common objectives
of both the parties.
 Bailout Takeovers:
Another form of takeover is a ‘bail out takeover’ in which a profit making company acquires
a sick company. This kind of takeover is usually pursuant to a scheme of
reconstruction/rehabilitation with the approval of lender banks/financial institutions. One
of the primary motives for a profit making company to acquire a sick/loss making company
would be to set off of the losses of the sick company against the profits of the acquirer,
thereby reducing the tax payable by the acquirer. This would be true in the case of a merger
between such companies as well.

20.  Leveraged Buyouts:
These are a form of takeovers where the acquisition is funded by borrowed money. Often
the assets of the target company are used as collateral for the loan. This is a common
structure when acquirers wish to make large acquisitions without having to commit too
much capital, and hope to make the acquired business service the debt so raised.
Ex: Acquisition of Britain’s Corus by Tata an Indian conglomerate by way of a leveraged
buy-out. The Tatas also acquired Jaguar and Land Rover in a significant cross border
transaction
 Hostile Takeover:
A hostile takeover can happen if the board rejects the offer, but the bidder continues to
pursue it or the bidder makes the offer without informing the board beforehand.

21. Advantages & Disadvantages of Acquisition
Advantages
Disadvantages
 Decreased time to access and penetrate  Increased risk – may be a large financial
target market as the existing company commitment but faces political and
already has a product line to be exploited market risks
and a distribution network
 Poor or slow post-merger integration
 Prevents an increase in the number of
 Target too large or too small
competitors in the market
 Overly optimistic appraisal of synergies
 Overcome entry barriers including
restrictions on skills, technology , materials  Overestimation of market potential
supply and patents  Inadequate due diligence
 Incompatible corporate cultures

22. Examples of Mergers and Acquisition
 In FMCG Sector : P&G and Gillette ; Dabur acquired Balsara for 143
crores ;Godrej Consumer Care bought Keyline Brands ;Marico acquired
HLL Nihar brand.
 One such example would be the acquisition of Britain’s Corus by Tata an
Indian conglomerate. The Tatas also acquired Jaguar and Land Rover in a
significant cross border transaction.
 Vijay Mallya's United Breweries Group (through Group entities Mc Dowell
& Co, Phipson Distillery, United Spirits and United Breweries Holdings)
acquired a controlling stake in the Jumbo Group's Shaw Wallace &
Company for a total deal value of Rs 16.2 billion ($371.6 million).

23.  McLeod Russell India (part of the B. M. Khaitan Group)
acquired a 90 per cent stake in Williamson Tea Assam
for Rs 2.1 billion ($48.2 million).
 HLL's mergers with TOMCO, Lakme, Brook Bond Lipton
India, Pond's India.
HLL's acquisitions: Kissan, Kwality Icecreams and
Modern Foods.

24. Sequenced Entry
 Initial entry into one group and subsequent mobility from group
to group
 Ex: Tata group, Procter & gamble
 Sequential entry lowers cost of overcoming mobility barriers &
also risk.

25. References:
 ‘Competitive Strategy’ by Porter
 www.en.wikipedia.org/wiki/Strategic_management
 http://www.marketingprofs.com
 www.nishithdesai.com Guideline No. 20-
100/2007-AS-1 issued by the DoT, issued on April
22,2008
 http://mgmt339.wordpress.com/