1. © 2013 Cengage Learning. All rights reserved. CHAPTER 11 GLOBAL2  PENG © Kevin Lee/Bloomberg via Getty Images

2. © 2013 Cengage Learning. All rights reserved. CHAPTER 11 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Define alliances and acquisitions. 2. Articulate how institutions and resources influence alliances and acquisitions. 3. Describe how alliances are formed. 4. Outline how alliances are dissolved.

3. © 2013 Cengage Learning. All rights reserved. CHAPTER 11 LEARNING OBJECTIVES After studying this chapter, you should be able to: 5. Discuss how alliances perform. 6. Explain why firms undertake acquisitions and what performance problems they tend to encounter. 7. Articulate what you can do to make global alliances and acquisitions successful.

4. © 2013 Cengage Learning. All rights reserved. LO1: DEFINE ALLIANCES AND ACQUISITIONS Strategic Alliances Voluntary agreements of cooperation between firms involving exchange, sharing or co-developing products, technologies, or services.

5. © 2013 Cengage Learning. All rights reserved. LO1: DEFINE ALLIANCES AND ACQUISITIONS

6. LO1: STRATEGIC ALLIANCES  Contractual alliances – associations between firms that are based on contract, with no sharing of ownership. Co-marketing Research and development (R&D) Contracts Turnkey projects Strategic suppliers Strategic distributors Licensing/franchising © 2013 Cengage Learning. All rights reserved.

7. LO1: STRATEGIC ALLIANCES  Equity-based alliances – based on ownership or financial interest between firms. Strategic investment Cross-shareholding Joint ventures © 2013 Cengage Learning. All rights reserved.

8. LO1: MERGERS AND ACQUISITIONS Merger – combination of operations and management of two firms to establish a new legal entity; accounts for only 3% of all M&As. Acquisition – transfer of the control of operations and management from one firm (target) to another (acquirer). © 2013 Cengage Learning. All rights reserved.

9. LO1: MERGERS AND ACQUISITIONS © 2013 Cengage Learning. All rights reserved.

10. LO2: INFLUENCE OF INSTITUTIONS © 2013 Cengage Learning. All rights reserved.

11. LO2: FORMAL INSTITUTIONS Antitrust concerns – antitrust authorities more likely to approve alliances than acquisitions. Entry requirements – many governments place limitations on foreign firm’s mode of entry. © 2013 Cengage Learning. All rights reserved.

12. LO2: INFORMAL INSTITUTIONS Normative pillar –firms copy other reputable organizations to establish legitimacy. Cognitive pillar – internalized, taken-for-granted values that guide alliances and acquisitions. © 2013 Cengage Learning. All rights reserved.

13. LO2: RESOURCES AND ALLIANCES Alliances must create value. © 2013 Cengage Learning. All rights reserved.

14. LO2: RESOURCES AND ALLIANCES Alliances can decrease value. © 2013 Cengage Learning. All rights reserved.

15. LO2: RESOURCES AND ALLIANCES Rarity – relational (collaborative) capabilities, the ability to manage inter- firm relationships, may be rare. © 2013 Cengage Learning. All rights reserved.

16. LO2: RESOURCES AND ALLIANCES Inimitability: Alliances may make it easier to observe imitate firm-specific capabilities.  Learning race – a race in which partners aim to learn the other’s tricks. Trust and understanding between allies is difficult to imitate. © 2013 Cengage Learning. All rights reserved.

17. LO2: RESOURCES AND ALLIANCES Organization – some successful alliances are organized in a way that is difficult to replicate. © 2013 Cengage Learning. All rights reserved.

18. LO2: RESOURCES AND ACQUISITIONS Value: Nearly 70% of acquisitions fail. Only identifiable group of winners is shareholders of target firms. Rarity: For acquisitions to add value, one or all of the firms involved must supply rarity to the acquisition. © 2013 Cengage Learning. All rights reserved.

19. LO2: RESOURCES AND ACQUISITIONS Inimitability: Firms that excel in post-acquisition integration possess hard-to-imitate capabilities. Organization: How are merged firms organized to take advantage of benefits of acquisition while minimizing the costs? Strategic fit Organizational fit © 2013 Cengage Learning. All rights reserved.

20. LO3: FORMATION OF ALLIANCES © 2013 Cengage Learning. All rights reserved.

21. LO3: FORMATION OF ALLIANCES – STAGE ONE  Can growth be achieved strictly through market transactions, acquisitions, or alliances? To grow through market transactions, the firm must independently confront competitive challenges. Acquisitions have unique drawbacks. © 2013 Cengage Learning. All rights reserved.

22. LO3: FORMATION OF ALLIANCES – STAGE TWO  Contract or equity approach? Equity relationship allows firms to learn tacit capabilities. Equity relationships allow firms to have some control over joint activities. Contracts do not. © 2013 Cengage Learning. All rights reserved.

23. LO3: FORMATION OF ALLIANCES – STAGE THREE  Specify a format that is either equity- or contract-based. © 2013 Cengage Learning. All rights reserved.

24. LO4: DISSOLUTION OF ALLIANCES © 2013 Cengage Learning. All rights reserved.

25. LO5: PERFORMANCE OF ALLIANCES Four key factors:  Equity Greater equity stake may mean firm is more committed, likely to result in higher performance.  Learning and experience Has a firm successfully learned from its partners? Experience often used as a proxy. © 2013 Cengage Learning. All rights reserved.

26. LO5: PERFORMANCE OF ALLIANCES Four key factors:  Nationality Dissimilarities in national culture may create strains in alliances.  Relational capabilities Alliance performance may fundamentally boil down to soft, hard-to-measure relational capabilities. © 2013 Cengage Learning. All rights reserved. © iStockphoto.com/nolimitpictures

27. LO6: WHY MAKE ACQUISITIONS? Reduce Value Add Value © 2013 Cengage Learning. All rights reserved.

28. LO6: WHY MAKE ACQUISITIONS? Reduce Value Add Value © 2013 Cengage Learning. All rights reserved.

29. LO6: ACQUISITION FAILURES © 2013 Cengage Learning. All rights reserved.

30. LO6: CROSS-BORDER ACQUISITION FAILURES © 2013 Cengage Learning. All rights reserved.

31. LO7: MAKING GLOBAL ALLIANCES AND ACQUISITIONS SUCCEED © 2013 Cengage Learning. All rights reserved.

32. DEBATE: ACQUISITIONS vs. ALLIANCES Acquisitions: One-off deals. Must incorporate both the good and bad parts of the acquired firm. Alliances: Cost less. Allow for learning opportunities from working together. © 2013 Cengage Learning. All rights reserved.