1. Corporate Strategy: Acquisitions, Alliances, and Networks
Instructor:
Dr.Gehan Shanmuganathan

2. LO 9-1 Differentiate between mergers and acquisitions, and explain why firms would use either as a vehicle for corporate strategy.
LO 9-2 Define horizontal integration and evaluate the advantages and disadvantages of this corporate level strategy.
LO 9-3 Evaluate whether mergers and acquisitions lead to competitive advantage.
LO 9-4 Define strategic alliances, and explain why they are important corporate strategy vehicles and why firms enter into them.
LO 9-5 Describe three alliance governance mechanisms and evaluate their pros and cons.
LO 9-6 Describe the three phases of alliance management, and explain how an alliance management capability can lead to a competitive advantage.
LO 9-7 Define strategic networks and evaluate the advantages and disadvantages of different network positions.
9-2

3. ChapterCase 9 Facebook: From Dorm Room to Dominant Social Network
Facebook: “most powerful and transformative social change”
Started by Mark Zuckerberg in 2004
Overcame the first-mover advantage held by MySpace
True global strategy: more users first, profits later
Adding different functions to go after a wide range of users
Innovative network marketing approach
Word of mouth through online social network
Frequently attacked for insufficient protection of users’ privacy
Needs a sustainable business model
9-3

4. Integrating Companies: Mergers and Acquisitions
Merger: combining two companies
Friendly approach
Ex: Disney & Pixar
Generally similar in size
Acquisition: purchase or takeover a company
Can be friendly or unfriendly
Hostile takeover
Ex: Vodafone buys Mannesmann
INSTRUCTOR: Embedded at the bottom of this slide is a 7-minute video on Dell’s faltering since 2005 and its purchase of Perot Systems. The video is produced by BusinessWeek.
Dell Makeover Video
9-4

5. Horizontal Integration: Merging with Competitors
Horizontal integration: process of merging and acquiring competitors
HP buys Compaq in 2002
Pfizer buys Wyeth in 2009
Live Nation buys Ticketmaster in 2010
Benefits:
Reduce competitive intensity
Lower costs
Boost differentiation
Access to new markets and distribution channels
9-5

6. Kraft acquired Cadbury in UK
STRATEGY HIGHLIGHT 9.1
Food Fight: Kraft Hostile Take- over of Cadbury
Kraft acquired Cadbury in UK
Hostile takeover, $20 billion deal
Cadbury has strong position in emerging economies
Perfected distribution system in countries like India
Kraft faces strong rivalries worldwide, including China
The acquisition forces Hershey and other competitors to rethink their strategies
Hershey 90% revenues from U.S. market
1–6
9-6 6

7. Mergers and Acquisitions
Many M&As actually destroy shareholder value!
When there is value, it often goes to the acquiree
Acquirers tend to pay a premium
Why still desire M&As?
Overcome competitive disadvantage
Superior acquisition and integration capability
Principal–agent problems
9-7

8. EXHIBIT 9.3 Value Destruction in M&A: The Worst Offenders
Shareholder value destroyed based on up to 3 years post-merger analysis compared to overall stock market
9-8

9. Amazon’s Kindle Apple’s iPad Strategic Alliances to Challenge Amazon
STRATEGY HIGHLIGHT 9.2
Amazon’s Kindle
E-reader selling content below cost
Content providers do not want fixed price for e-books ($9.99)
Similar strategy Amazon used for printed books earlier
Apple’s iPad
Allied with major publishers
Let publishers set the prices directly
Apple worked with publishers to increase the bargaining power over customers
1–9
9-9 9

10. Why Do Firms Enter Strategic Alliances?
Strengthen competitive position
Apple vs. Amazon
Enter new markets
Local partner for global growth
Microsoft partners with Yahoo on search
Hedge against uncertainty
Real options approach
Roche invests in Genentech 1990 & buys it in 2009
Access critical complementary assets
Pixar partners with Disney
Learn new capabilities
GM & Toyota (NUMMI) – formed in1984
9-10

11. Governing Strategic Alliances
Governing mechanisms:
Contractual agreements for non-equity alliances
Based on contracts
Equity alliances
One firm takes partial ownership in the other
Joint ventures
Standalone organization owned by 2 or more firms
9-11

12. Alliance Management Capability
A firm’s ability to effectively manage three alliance related tasks concurrently.
30 to 70% of all alliances yield disappointing results
Partner selection and alliance formation
Alliance design and governance
Post-formation alliance management
9-12

13. Strategic Networks Social structure with multiple organizations
Network nodes – the organizations
Network ties – the links between organizations
Network achieves goals that cannot be done by only one firm
Example - Star Alliance
1st global airline network
Air Canada, Air China, Continental Airlines,
Lufthansa, Singapore Airlines, United Airlines, etc.
Seamless travel on 25 international airlines
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 9-7.
9-13

14. Firms Embedded in Strategic Networks
EXHIBIT 9.8
Firms Embedded in Strategic Networks
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 9-7.
A hypothetical strategic network.
Firm B is in a key position - knowledge broker
9-14

15. CHAPTERCASE 9/ Consider This…
The success of Facebook relies on:
Complementary apps
Signed strategic relationship with Zynga (FarmVille, etc. )
Zynga games are available in many portals
Allied with 7-11 for marketing
Networking with Apple, Android, MSN…etc.
What are the major differences between Facebook and MySpace? What are the implications?
What are your suggestions for Zynga to manage its numerous network relationships?
What do you see as the advantages and disadvantages of Zynga’s network strategy?
9-15