Midterm 2- Business Policy

Merger

a strategy through which two firms agree to integrate their operations on a relatively coequal basis

Acquisiton

a stategy through which one firm buys a controlling, or 100 percent interest in another firm with the intent of making the acquired firm a subsidary business within its portfolio

M&A

shareholders of acquired firms do better than shareholders of the acquiring firm

Horizontal Acq

uisition occurs when a company acquires another company operating at the same level in an industry, often to increase market share.

Vertical Acq

a strategy where a firm acquires another company at a different stage of the supply chain, enhancing its control over the production process.

Related Acq

a strategy where a company acquires another firm that is related to its existing business, often to create synergies and enhance competitiveness.

Reasons for M&A

1. Increased market power

2. overcoming entry barriers

3. cost of new product development and increased speed to market

4. increased diversification

5. reshaped firms competitive scope

6. learning and developing new capabilies

Increased market power

the ability to set prices higher than in a competitive market, leading to greater profits and influence over market conditions.

Overcoming entry barriers

strategies that allow a company to enter a market more easily, often by acquiring established firms or leveraging existing resources.

Cost of new product development and increased speed to market

refers to the reduction in expenses and time associated with bringing new products to market, often achieved through mergers and acquisitions.

Increased Diversification

the process of a company expanding its range of products or services to reduce risk and increase opportunities for growth.

Reshaping firms competitive scope

involves altering the focus and boundaries of a company's market activities to enhance competitive advantage and adapt to changing market conditions.

Learning and developing new capabilites

refers to the process of acquiring new skills and knowledge within an organization to improve performance, innovate, and respond effectively to market changes.

Problems with M&A

1. Integration difficulties

2. Inadequate Evaluation of Target

3. Large debt for acquistions

4. inabilty to achieve synergies

5. Too much diversifcation

6. Managers overly focused on acquistions

7. Acquistions are too large

International Strategy

a strategy through which the firm sells its goods or service outsides its domestic market

Benefits of International Strategy

1. Increased market size

2. Return on investment

3. Increased economics of scale and learning

4. Developmen of a competitve advantage through location

INcreased market size

refers to the potential for a firm to reach more customers by expanding its operations into international markets, thus increasing overall sales and revenue.

Return on investment

the gain or loss generated relative to the investment cost, often expressed as a percentage.

Economies of scale and learning

refers to the cost advantages that a business obtains due to the scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units. Additionally, it encompasses the enhanced efficiency and productivity gained from experience over time.

Location Advantages

refers to the benefits a company gains by operating in a specific geographical area, including access to resources, skilled labor, or proximity to markets, which can enhance competitive advantage and profitability.

Businesss level international strategy

1. Firm Stratety, Structure, Rivarly,

2. Demand Conditions

3. Related and supporting industries

4. Factors of production

Factors of Production

the resources used to produce goods and services, including land, labor, capital, and entrepreneurship.

Demand COnditions

the characteristics of the local market that influence the demand for a company's products or services, including consumer preferences, purchasing power, and market size.

Related & Supporting Industries

Industries that provide the necessary inputs, services, or technology to enhance the competitiveness of a firm, contributing to innovation and efficiency.

Rivarly among firms

Corporate Level International Strategy

focuses on the scope of a firm’s operations through geographic diversification

Multidomestic Strategy

a business strategy that allows firms to tailor their products and services to meet the specific needs of customers in different countries.

Global Strategy

a business strategy that involves offering standardized products and services across multiple countries, focusing on economies of scale and efficiency.

Transnational Strategy

a business strategy that seeks to combine the benefits of global efficiency and local responsiveness by integrating operations across countries.

Exporting

the process of selling goods and services produced in one country to customers in another country.

Licensing

a business arrangement where a company allows another firm to use its intellectual property, brand, or technology in exchange for a fee or royalty.

Strategic Alliances

a partnership between two or more companies to pursue a set of agreed-upon objectives while remaining independent organizations.

Wholly owned subsidaries

businesses that are fully owned and controlled by another company, allowing for complete operational control and profit retention.

Liability of Foreigness

Even if foriegn markets seem attractive, there are legitate concerns for firms considering entering these markets

cost associated with various issues firms fac when entering foreign markets (cultural, adminstrative, geographic, and economic)

Regionalization

North america free trade agreement

EU

BRICS (Brazil Russia India China South Africa)

Strategic Alliance

a partnership between two or more firms to pursue a set of agreed-upon objectives while remaining independent organizations.

Joint Ventures

two or more firms create a legally independent enetity to share some of their resources to create a compeititve advantage

Equity Strategic Alliance

a partnership where firms share equity ownership in a joint venture, combining resources and capabilities to achieve mutual goals.

Non Equity Strategic Alliance

Two or more firms develop a contractual relationship to share some of their resources to create a competitve advantage

firms do not establish a separate indepndent company and do not take equity positions

Less formal, demand fewer partner commitmentes

Diversifying Alliances

a type of strategic alliance where firms collaborate to expand into new markets or product lines, thereby reducing risk and enhancing growth opportunities. These alliances may involve sharing resources, expertise, or technology to develop new products or enter new geographic areas, enabling partners to diversify their portfolios and strengthen their competitive positions.

Synergistic Alliances

a type of strategic alliance where firms collaborate to create greater value together than they would individually, often leveraging each other's strengths to maximize competitive advantage.

Strategic Controls

to the methods and processes used by a company to monitor and evaluate its strategic planning and performance. They help ensure that the firm is implementing its strategies effectively and achieving its long-term goals. This may include measuring performance against set objectives, analyzing market trends, and adjusting strategies as necessary to stay competitive.

Financial Controls

the processes and procedures used by a company to manage its financial resources, ensuring that its financial objectives are met and that financial risks are minimized. This includes budgeting, financial reporting, and auditing to monitor financial performance and compliance.