Marketing & Strategy (6011P 0116/0095) 2011-2012 October 3/4 2011

Part 5 Collaborative Strategies & Takeovers

Roger Pruppers Amsterdam Business School Universiteit van Amsterdam

Midterm
Answers of the midterm exam See Blackboard Midterm exams available for inspection This weeks tutorial Problems with midterm registration Contact the student administration Visit Open Hours (Spreekuur) in room E1.51

Attendance
Final rules regarding missing working groups/seminars Missed 0 or 1 Safe Missed 2 Additional individual assignment to compensate for missed session Missed 3 End of story -> Resit Note: only applies to absence without valid reason For all other cases: talk to student counsellor Assignment Will be posted in Blackboard a.s.a.p. To be handed in via email to course coordinator Dr. Joris Ebbers J.j.ebbers@uva.nl Deadline: 3 days before exam, i.e. Monday October 24, before 17.00h

From competition

to acquisition!

Remember generic strategies?

Transition in topics
Up to this point, we have focused on competition Analysis of the competitive environment E.g. competitive rivalry as one of Porters 5 forces Competitive advantage Create value in a way that competitors cannot Etc.etc. This week we focus on Collaborative Strategies and Takeovers Cooperation in stead of competition But still with the objective to create competitive advantage So many of previous weeks theories and models will come back today! Outline Part 1. Part 2.

Strategic Alliances Mergers and Acquisitions

Structure by the most basic questions you can think of

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Part 1. Strategic Alliances: WHAT?

What is a Strategic Alliance? (Part of) a strategy Week 1: Coordinated means by which organization pursues goals & objectives Definition Partnership in which two or more firms So it is about cooperation rather than competition Combine resources and capabilities So focus on internal view, RBV In order to enhance the competitive advantage of all parties So as with all strategies: create competitive advantage and thus achieve goals and objectives.

Week 1: Business strategy diamond

Staging What will be our speed and sequence of moves? Speed of expansion? Sequence of initiatives Staging Arenas Arenas Where will we be active? (and with how much emphasis?) Which product categories? Which channels? Which market segments? Which geographic areas? Which core technologies Which value-creation strategies? Differentiators How to win the marketplace? Image? Customization? Styling? Product reliability? 9 Speed to market? How will we get there? Internal development? Joint ventures? Licenses/franchise? Alliances? Acquisitions?

Economic logic

Vehicles

Economic logic

Differentiators

Vehicles

How will returns be obtained? Lowest costs through scale advantages? Lowest costs through scope and replication advantages Premium prices due to unmatchable service? Premium prices due to proprietary product features?

Strategy & Marketing

How is a brand alliance different from/related to a strategic alliance? And how does that relate to the difference/similarity between strategy and marketing in general?

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WHY?
Joint investment Sharing business risk E.g. between supplier and buyer (Value Chain) Knowledge sharing Learning from partners Effective management Make, buy or ally decision Complementary resources Create shared advantage

Advanced nutrition research by Nestl & skin biological research by LOral

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Alliances & competitive advantage

If alliances are part of a strategy Vehicle in Business Strategy Diamond (week 1) they should contribute to competitive advantage! If alliances contribute to competitive advantage they should pass the VRINE test (week 2)! Internal view of competitive advantage: Joined resources & capabilities should be:VRINE

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Alliance-specific approach to VRINE

Tailor VRINE criteria specifically to alliances -> The alliance generates competitive advantage if: Rivals cannot ascertain what generates the returns Rivals can figure out what generates the returns but do not possess those resources Rivals cannot imitate practices or investments because they are missing complementary resources Rivals cannot find a partner with the comparable complementary strategic resources Rivals cannot access potential partners resources because they are indivisible

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HOW?

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Alliance types
Equity alliances Ownership interest (in alliance/partner) Often unequal ownership Joint venture Specific form of equity alliance Equity investments in third legal entity Non-equity alliances No equity interest or creation of new organization Contract-based Franchising, co-branding, licensing, sole-sourcing

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Multiparty alliances (consortia)

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Company vs. alliance

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Benefits of multi-party alliances

Member benefits Higher seat occupation through seats supplied by alliance members Less competition by avoiding competitors / alliance members routes Selling seats for flights that airline does not perform itself Increased reputation of the airline brand Higher efficiency through sharing check-in services and lounges Joint promotions How VRINE-worthy is the STAR alliance?

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VRINE?
Which criterion does this refer to?

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WHO?
Consider activities in the value chain (week 2) Vertical alliances With different stage in value chain Vertical Often supplier or customer Reduce costs, improve customer value

Horizontal alliance With same stage in value chain Often (potential) competitor Horizontal Gain access to segments, reduce risk, improve efficiency, foster learning etc. Concept of co-opetition

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Five forces & alliances

Use Porters five forces model (week 2) for partner selection Any related organisation might be relevant alliance partner

Even the authors 6th force: complementors

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Part 2. Mergers & Acquisitions: WHAT?

Not strategies as such! Vehicles of strategy Elements of sound strategy (strategy diamond) May have major impact on other elements of strategy diamond! E.g. arenas Entrance into foreign market E.g. staging Speeds up processes E.g. economic logic Low cost due to economies of scope/scale

Arenas

Staging

Economic logic

Vehicles

Differentiators

Vehicles How will we get there?

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Mergers vs. acquisitions vs. alliances

Make, buy, ally decision Different strategic options for vehicles in strategy diamond Outsourcing Internal development Non-equity alliances Equity alliance Mergers Acquisitions

Merger Consolidation or combination of 2 or more firms Acquisition: One firm acquires another through stock purchase or exchange Vs. Alliances With alliances, the original organisations stay intact!

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WHY?
Motives for M&A Managerial motivations Managerialism, hubris Synergy! Value of firms combined > value of individual firms Remember reasons for diversification last week? Threat reduction Market power & access Cost savings Sharing & leveraging capabilities

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M&As versus internal development

1. More expensive (premium) 2. Inherit unnecessary adjunct businesses 1. Speed 2. Critical mass & scale 3. Access to complementary assets & resources 4. Reduced competition 3. All or nothing decision 4. Potential cultural conflicts

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HOW?
Types of M&As Vertical

Horizontal

Complementary relationships

Other classifications E.g. product & market expansion Gain access to markets E.g. geographic roll-up Change industry structure!
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Acquisition vs. divestiture

One transaction, multiple strategic considerations The sellers perspective

The buyers perspective

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Acquisition process
Understand conditions for synergy Control timing (internal and external) Establish a walk-away price

Results

Strategy itself Justification due diligence, negotiation Idea

Acquisition integration

Integration versus hands-off approach

Decision-making process problems

Integration process problems

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Remember the life cycle

Market Size

Time Embryonic Niche market selected products for selected markets Participants emphasize problem solving product as solution Technological uncertainty Growing Market expands beyond niche More competitors enter Mature Proliferation of products and markets served Market volatility and beginnings of industry consolidation Aggressive customers In Decline Product/market contraction Further consolidation and industry regeneration

Customers become better informed

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M&As and industry life cycle

M&A activity differs for industries E.g. driven by life cycle stage

Introduction

Growth

Maturity

M&As tend to be R&D and productrelated

M&As tend to be for acquiring products that are proven and gaining acceptance > Industry convergence

M&As primarily for dealing with overcapacity in the industry > Consolidation

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Recap
Alliances, M&As as PART of strategy Vehicles But with impact on other components And (thus) a potential driver for competitive advantage! Linked to many tools/concepts discussed earlier E.g. strategy diamond, RBV, VRINE, five forces model, value chain, life cycle etc. Next week Final topic/part in the book Overview of core models/theories/concepts and their relationships!

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