Business Policy

Merger

A strategy where two firms integrate on a coequal basis.

Acquisition

A strategy where a firm buys most or all of another firm’s stock to make it a subsidiary.

Takeover

An unfriendly acquisition where the target firm does not invite or solicit the bid.

Market Power

Market Power

Ability to sell above competitive levels or achieve lower costs than competitors.

Horizontal Acquisition

Acquiring a competitor in the same industry.

Vertical Acquisition

Acquiring a supplier or distributor to control more of the value chain.

Related Acquisition

Acquiring a firm in a highly related industry to exploit synergy and shared competencies.

Barriers to Entry

Factors that increase the cost or difficulty of entering a new market.

Cross-Border Acquisition

An acquisition where the two firms are headquartered in different countries.

Synergy

Value created from economies of scale, economies of scope, or sharing resources.

Private Synergy

Unique synergy that cannot be imitated because assets complement each other in ways no other combination would.

Due Diligence

The process of evaluating a target firm before acquisition (finances, culture, taxes, capabilities).

Junk Bonds

High-risk, high-yield debt used to finance risky acquisitions.

Bureaucratic Controls

Highly formalized rules and policies used to standardize decisions and behaviors across units.

Restructuring

Changing the set of businesses or financial structure of a firm.

Downsizing

Reducing employee numbers or operating units.

Downscoping

Divesting or eliminating non-core businesses.

Leveraged Buyout (LBO)

A firm is bought using a large amount of borrowed money, taking it private.

Sell-off

Selling a portion of the business directly to another firm.

Spin-off

Creating a new independent company by distributing shares to existing shareholders.

Carve-out

Selling a partial interest in a business to investors while keeping majority control.

International Strategy

Selling goods/services outside the domestic market.

International Diversification

Expanding operations across multiple countries/regions.

Global Value Chains

International networks for producing and distributing goods/services.

Liability of Foreignness

Costs and disadvantages of operating outside the home country.

Political Risks

Threats arising from government actions or political instability.

Legal Risks

Weak legal systems, corruption, or poor enforcement affecting a firm’s operations.

Economic Risks

Macroeconomic weaknesses that threaten success in foreign markets.

Cultural Distance

Degree of differences in norms and values between countries.

Factors of Production

Inputs required to compete: labor, land, natural resources, capital, infrastructure.

Demand Conditions

Nature and size of local market demand.

Related and Supporting Industries

Quality and strength of supplier industries.

Firm Strategy, Structure, and Rivalry

How companies compete and how intense domestic competition is.

Multidomestic Strategy

Decentralized decisions; high local responsiveness; products tailored to each country.

Global Strategy

Centralized decisions; standardized products; economies of scale.

Transnational Strategy

Balances global efficiency and local responsiveness through flexible coordination.

Exporting

Producing domestically and shipping abroad.

Licensing

Allowing a foreign firm to produce and sell a product in exchange for royalties.

Franchising

Granting access to a business model, processes, and brand for fees + royalties.

Strategic Alliance

Partners collaborate using shared resources.

Cross-Border Acquisition

Purchasing a foreign company to enter its market.

Greenfield Venture

Building a new wholly owned subsidiary from scratch.

Cooperative Strategy

A strategy where firms collaborate to achieve a shared objective and build a relational (collaborative) advantage.

Strategic Alliance

Firms combine resources to develop a competitive advantage.

Joint Venture

Two or more firms create a new legally independent company.

Equity Strategic Alliance

One firm purchases equity in another firm.

Nonequity Strategic Alliance

A partnership governed by a contract, not shared ownership.

Complementary Strategic Alliances

Partners share complementary resources.

Vertical Complementary Alliance

Partners operate at different value-chain stages.

Horizontal Complementary Alliance

Partners operate at the same value-chain stage.

Competition-Response Strategy

Alliance formed in response to a competitor’s actions.

Uncertainty-Reducing Strategy

Used to hedge against uncertainty, especially in fast-cycle markets.

Competition-Reducing Strategy

Alliances formed to limit competition.

Explicit Collusion

Direct negotiation to set prices/output — illegal in most countries.

Tacit Collusion

Indirectly coordinating actions by observing competitors.

Mutual Forbearance

Firms refrain from attacking each other in markets where they both compete.

Diversifying Strategic Alliance

Firms share resources to enter new product/geographic markets.

Synergistic Strategic Alliance

Sharing resources to create economies of scope.

Franchising

A contractual relationship where a franchisor licenses its brand/methods to franchisees.

Cross-Border Strategic Alliance

Firms from different countries combine resources to form an alliance and overcome liability of foreignness.

Alliance Network

A collection of interconnected strategic alliances.

Stable Alliance Network

Used in mature industries with stable demand.

Dynamic Alliance Network

Used in fast-changing industries with short product life cycles.

Opportunistic Behavior

A partner acts in its own interest at the expense of others.

Misrepresentation of Resources

A firm exaggerates what it brings to the alliance.

Failure to Provide Committed Resources

A firm does not deliver promised assets or capabilities.

Unequal Investments

One partner invests more and receives less value.