Corporate Strategy: Strategic Alliances, Mergers and Acquisitions

These flashcards cover key vocabulary and concepts related to corporate strategy, strategic alliances, mergers, and acquisitions, based on the lecture notes provided.

Strategic Alliance

A voluntary arrangement between firms that involves sharing of knowledge, resources, and capabilities.
knoweledgable
resources
capabilities

Build-Borrow-Buy Framework

A corporate strategy framework used to evaluate options for growth through building, borrowing, or buying resources.

How relevant are internal resources?

How tradable are the targeted resources?

How close to your resource partner?

How well can you integrate the target firm?

Internal Growth

Expansion of a company’s operations through internal development.

External Growth

Growth achieved through contracts or strategic alliances.

Acquisition

The purchase of one company by another.

Horizontal Integration

The merger with or acquisition of a competitor.

Real-options Approach

A method for evaluating investment opportunities in uncertain environments.

Joint Venture

A standalone organization created and jointly owned by two or more parent companies.

Licensing

A contractual agreement where one party allows another to use its resources or capabilities.

Equity Alliance

A partnership where one firm takes a partial equity stake in another firm.

Managerial Hubris

Overconfidence in one's capabilities, often leading to poor business decisions.

Complementary Assets

Assets that enhance the value of another asset when combined.

Synergy

The combined effect of two companies that exceeds the sum of their separate effects.

Mergers and Acquisitions (M&A)

The processes of consolidating companies through various types of financial transactions.

Critical Complementary Assets

Key resources that enhance a firm’s competitive position.

Underperformance of M&A

The phenomenon where mergers and acquisitions do not meet projected benefits, often resulting in disappointing outcomes.

Alliance Management Capability

The ability to effectively manage partnerships and alliances to achieve desired results.

Formal Governance Mechanisms

Established rules and structures that govern alliances, such as contracts or equity stakes.

Informal Governance Mechanisms

Trust-based governance structures that rely on relationships rather than formal agreements.

VRIN Framework

A tool to evaluate resources: Valuable, Rare, Inimitable, and Non-substitutable.

Frictional Costs

Difficulties and expenses related to integration after an acquisition.

Strategic Resource Gap

The disparity between current resources and those required for optimal operation.

Interfirm Trust

The mutual trust established between partners in a strategic alliance.

Knowledge-Sharing Routines

Established practices for sharing knowledge between alliance partners.

Suboptimal Fit

A lack of synergy or compatibility between merger partners leading to inefficiency.

Competitive Advantage

A condition or circumstance that puts a company in a favorable position over competitors.

Acquisition Strategy

A plan to acquire other businesses to enhance capabilities or enter new markets.

Market Entry Barriers

Obstacles that make it difficult for new competitors to enter an industry.

Cultural Compatibility

The alignment of organizational cultures between merging entities.

Target Firm

The company being acquired in a merger or acquisition.

Eliminating Competition

A benefit of mergers that results in less rivalry in the market.

Cost Reduction

Decreasing expenses through consolidation or increased efficiencies.

Diversification Strategy

An approach where a company expands into new markets or products.

Equity Stake

Ownership interest in another company, typically in the form of shares.

Market Consolidation

The process where fewer companies dominate a market through mergers or acquisitions.

Stakeholder Goals

The interests and objectives of parties with a vested interest in a company.

Competitive Position Strengthening

Enhancing a firm's standing in the marketplace through strategic alliances.

Hedge against Uncertainty

Using strategic alliances to mitigate risks in unpredictable environments.

Partnership Compatibility

The degree to which potential partners align in terms of goals and values.

Excessive Diversification

A situation where a company spreads itself too thin across too many markets.

Costly Acquisitions

Acquisitions that incur high expenses and emotional costs among managers.

Business Process Integration

The alignment of operations and systems between merged entities.

M&A Integration Challenges

Issues that arise during the merger process which can thwart success.

Commitment Levels

The degree of dedication partners show towards the alliance's success.

Temporary Alliances

Short-term partnerships formed for specific, often limited purposes.

Franchising

A business model that involves licensing a firm's business model and brand for a fee.

Cultural Integration

The process of merging the cultures of two companies into a cohesive system.

Risk Assessment

Evaluating potential pitfalls in a strategic initiative.

Corporate strategy?

Growth strategy, build: internal growth through develpmnent
Borrow: external growth through contracts, strategic alliances
Buy:external growth through aquiring new resources, capapblilities, competences external growth through acquiring new resources, capabilities, competenci

Close to the resource partner?

How close do you need to be with your external resource partner?
Not close: short-term, long-term contracts
Closer: equity alliances, joint ventures
very close: mergers, acquisitions
acquisitions are complex and costly- used only when extremen closeness is needed

How will integrate the resource partner?

conditions for integrating a target firm":
Low relevance of internal resources
Low tradeability
Extreme need for closeness High significance of internal resources, high tradeability, significant need for closeness.

intent of strategic alliances

Intent of strategic alliances- joint development of:

new processes
new products
new services

Governing strategic alliances

Non-equity alliances
partnership based on contracts
supply aggreemnts, distribution agreemnts, licensing agreemnts, franchsies

Equity alliances

One partner takes a partial equity stake in order

Joint Ventures

standalone organization, created and jointly owned by two or more parent companies (HULU)

alliance management

30%-70% of alliances fail to deliver expected benefits

complementary assets, new capabilities

Strategic alliances can provide access to complementary assets or complete the value chain.
Example: General Motors, Toyota: NUMMI