Strategic Alliances

What is a strategic alliance

When two or more businesses form a partnership

Can be for a singular project, business venture or long-term to create a new business

For mutual benefit and should bring in new income for partners

Advantages of Strategic alliances

Quick access to new markets

Larger market share

Reduction of competition by forming with competitors

Gaining expertise and technology

Increased sales

Disadvantages

Businesses take on the weaknesses of partners

less efficient communication

Increased conflict over business decisions

Takes time and energy away from the core business

Loss of control over aspects of the business

The types of strategic alliance (5)

Outsourcing

Acquisition

Mergers

Joint venture

Franchising

What is outsourcing

Using an overseas company to perform business functions

Why would people outsource

Overseas companies may specialise in performing these tasks, have well-trained staff and efficient operations

Is typically cheaper than the business doing it itself

Australian companies can gain local knowledge by outsourcing to target countries

Stable ad reliable communication provides access to locations around the world

Impacts of strategic alliances

Decreased employment in Australia

New jobs are created overseas

Reduction in operating costs and extra capital for further expansion and growth

What is acquisition as a strategic alliance

When a company buys another pre-existing company

Why would businesses acquire other companies

Provides a quicker start inside a new market

Creates synergy, combining the skills and expertise of the companies

Commonly done by buying a majority of another company’s shares

A growth strategy because it makes the business bigger, and more competitive

What are the two types of Acquisition

Friendly and Hostile

What is a Hostile Acquisition

When the acquisition is made without approval from the owners and directors

Often done by buying directly from shareholders or using their voting power to place in management who would approve of the acquisition

What might the purchasing company do

Use a tender offer

• Offer to buy shares from holders at a fixed (above market) price

Buy shares on the open market

• Buy enough shares on the stock exchange to own the company

Use a proxy fight

• Persuading shareholders to place in management who would approve

What is the bear hug method

A hostile takeover approach

Making an offer to a company’s board to take over without approaching shareholders

The proposed purchase and offered share price is then made public with the aim to “squeeze“ and pressure the board of directors to accept

They may not like it, but are pressured through shareholders and public scrutiny

Friendly acquisition

An acquisition of shares through a negotiated process with consent from the board of directors and full disclosure to shareholders

It is more likely shareholders will accept if the acquisition is friendly

Risks of acquisition

The money expended isn’t outweighed by the benefits received

The company purchasing must ensure that the other company discloses their financial position, ensuring that there aren’t any surprises after the acquisition