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EXPANSION THROUGH COOPERATION

By Shruti Patil (Faculty of Management Studies-Baroda)

MICHAEL PORTERs assumption- companies compete in market for a limited market share. Win-Lose situation Contrary view- competition could co-exist, competition is possible with mutual cooperation and beneficial to all parties concerned i.e. co-opetition co-opetition- simultaneous cooperation and competition among rival firms.

Types of Cooperative Strategies :MERGERS Objectives of buyers and sellers match to a large extent TAKEOVERS Acquisition-usually based on the strong motivation of the buyer firm to acquire

JOINT VENTURES
Independent firm is created by 2 or more firms Invaluable strategy for utilizing global expansion opportunities STRATEGIC ALLIANCE

Resources capabilities & core competencies are combined to pursue mutual interests to develop, manufacture or distribute goods or services.

1.MERGER STRATEGIES
HORIZONTAL
In same business

VERTICAL
Create complementarity in terms of supply(inputs) or marketing of goods & services (outputs)

CONCENTRIC
Related in terms of customer functions customer groups or technology

CONGLOMERATE
2 or more unrelated organizations

REASONS FOR MERGERS( FOR BUYERS)

To increase the value of the organizations stock To increase the growth rate and make a good investment To improve stability of earnings and sales To balance,complete,or diversify product line To reduce competition To acquire needed resources quickly To avail tax concessions and benefits To take advantages of synergy

REASONS FOR MERGERS (FOR SELLERS)


To increase the value of the owners stock and investment To increase the growth rate To acquire resources to stabilize operations To benefit from tax legislation To deal with top management succession problem

Important issues in mergers


Strategic issues Financial issues Managerial issues Legal issues

2. Takeovers

How takeovers take place : Spell out the objective Indicate how the objective would be achieved Assess managerial quality Check the compatibilty of business styles Anticipate and solve problems early Treat people with dignity and concern

Hostile Takeovers
Where a takeover is resisted or expected to be opposed by the existing management or professionals. Shares are picked from open markets and controlling interests obtained. With help from majority shareholders a bid is made to enter the companys board and to acquire control. Political support believed to be crucial in hostile takeovers.

PROS AND CONS OF TAKEOVERS


PROS

CONS Ensure management Professionalism gets accountability replaced by money-power Offer easy growth Do not create any real opportunities assets for society and are Create mobility of resources detrimental to national economy Avoid gestation periods and hurdles involved in new Interests of minority projects shareholders is not protected Offer a chance to sick units to survive Open up alternatives for selective divestment

3.Joint ventures

Mergers
Absorption Consolidation

JOINT VENTURES

JOINT VENTURES cont..

Joint ventures are a special case of consolidation where two or more companies form a temporary partnership (also called a consortium) for a specified purpose.

Conditions for joint ventures


useful to gain access to a new business mainly under four conditions. 1. Activity is uneconomical 2. For risk sharing 3. to bring together distinctive competencies 4. When setting up an organization requires surmounting hurdles.

Types of Joint Ventures


Between two firms in one industry Between two firms across different industries Between an Indian firm and a foreign company in India Between an Indian firm and a foreign company in that foreign country Between an Indian firm and a foreign company in a third country

Benefits and drawbacks in Joint Ventures


Benefits
Minimizing risk Reducing an individual companys investment Having access to foreign technology Broad-based equity participation Access to governmental support Entering new fields of business Synergistic advantage

Drawbacks
Problems in equity participation Foreign exchange regulations Lack of proper coordination among participating firms Cultural and behavioural differences Possibility of conflict among the partners

Strategic Alliances
Necessary and sufficient characteristics 1. 2 or more firms unite to pursue a set of agreed upon goals but remain independent subsequent to the formation of the alliance 2. The partner firms share the benefits of the alliance and control over the performance of assigned task 3. The partner firms contribute on a continuing basis in one or more key strategic areas for e.g. technology ,product etc

Strategic Alliance is a cooperative arrangement between two or more companies where :


Win-Win attitude is adopted by all parties Reciprocal relationship Pooling of resources, investments, and risks occurs for mutual gain

Types of Strategic Alliances


High
Non-Competitive Alliance Competitive Alliance

Low
Interaction

Pro-Competitive Alliance

Pre-Competitive Alliance

Low
Conflict

High

Reasons for Strategic Alliances


1.Entering new markets 2.Reducing manufacturing costs 3.Developing and diffusing technology

Other reasons
Accelerate product introduction Overcome legal and trade barriers expeditiously

Managing strategic alliances


1. Clearly define a strategy and assign responsibilities 2. Phase in the relationship between the partners 3. Blend the cultures of the partners 4. Provide for an exit strategy