Business Questions

The list of questions that need to be answered are attached. Also, the powerpoints for chapters 7,8,9 will be attached. I don’t have the power points for 10 and 11. Be sure to use a reference that is from the book attached with power points. Please no Plagiarism or AI software detects it.

Review Questions Chapter 7
1. Why are merger and acquisition strategies popular in many firms competing in the global
economy?
2. What reasons account for firms’ decisions to use acquisition strategies as a means to
achieving strategic competitiveness?
3. What are the seven primary problems that affect a firm’s efforts to successfully use an
acquisition strategy?
4. What are the attributes associated with a successful acquisition strategy?
5. What is the restructuring strategy, and what are its common forms?
6. What are the short- and long-term outcomes associated with the different restructuring
strategies?
Review Questions Chapter 8
1. What incentives influence firms to use international strategies?
2. What are the three basic benefits firms can gain by successfully implementing an
international strategy?
3. What four factors are determinants of national advantage and serve as a basis for
international business-level strategies?
4. What are the three international corporate-level strategies? What are the advantages and
disadvantages associated with these strategies?
5. What are some global environmental trends affecting the choice of international
strategies, particularly international corporate-level strategies?
6. What five entry modes do firms use to enter international markets? What is the typical
sequence in which firms use these entry modes?
7. What are political risks and what are economic risks? How should firms deal with these
risks?
8. What are the strategic competitiveness outcomes firms can achieve through international
strategies, and particularly through an international diversification strategy?
9. What are two important issues that can potentially affect a firm’s ability to successfully
use international strategies?
Review Questions Chapter 9
1. What is the definition of cooperative strategy, and why is this strategy important to firms
competing in the current competitive landscape?
2. What is a strategic alliance? What are the three major types of strategic alliances that
firms form for the purpose of developing a competitive advantage?
3. What are the four business-level cooperative strategies? What are the key differences
among them?
4. What are the three corporate-level cooperative strategies? How do firms use each of these
strategies for the purpose of creating a competitive advantage?
5. Why do firms use cross-border strategic alliances?
6. What risks are firms likely to experience as they use cooperative strategies?
7. What are the differences between the cost-minimization approach and the opportunitymaximization approach to managing cooperative strategies?
Review Questions Chapter 10
1. What is corporate governance? What factors account for the considerable amount of
attention corporate governance receives from several parties, including shareholder
activists, business press writers, and academic scholars? Why is governance necessary to
control managers’ decisions?
2. What is meant by the statement that ownership is separated from managerial control in
the corporation? Why does this separation exist?
3. What is an agency relationship? What is managerial opportunism? What assumptions do
owners of corporations make about managers as agents?
4. How is each of the three internal governance mechanisms—ownership concentration,
boards of directors, and executive compensation—used to align the interests of
managerial agents with those of the firm’s owners?
5. What trends exist regarding executive compensation? What is the effect of the increased
use of long-term incentives on top-level managers’ strategic decisions?
6. What is the market for corporate control? What conditions generally cause this external
governance mechanism to become active? How does this mechanism constrain top-level
managers’ decisions and actions?
7. What is the nature of corporate governance in Germany, Japan, and China?
8. How can corporate governance foster ethical decisions and behaviors on the part of
managers as agents?
Review Questions Chapter 11
1. What is organizational structure and what are organizational controls? What are the
differences between strategic controls and financial controls? What is the importance of
these differences?
2. What does it mean to say that strategy and structure have a reciprocal relationship?
3. What are the characteristics of the different functional structures used to implement the
cost leadership, differentiation, integrated cost leadership/differentiation, and focused
business-level strategies?
4. What are the differences among the three versions of the multidivisional (M-form)
organizational structures that are used to implement the related constrained, the related
linked, and the unrelated corporate-level diversification strategies?
5. What organizational structures are used to implement the multidomestic, global, and
transnational international strategies?
6. What is a strategic network? What is a strategic center firm? How is a strategic center
firm used in business-level, corporate-level, and international cooperative strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
CHAPTER
7
Merger and Acquisition Strategies
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic
management knowledge needed to:
7-1 Explain the popularity of merger and acquisition strategies in firms
competing in the global economy.
7-2 Discuss reasons why firms use an acquisition strategy to achieve
strategic competitiveness.
7-3 Describe seven problems that work against achieving success
when using an acquisition strategy.
7-4 Name and describe the attributes of effective acquisitions.
7-5 Define the restructuring strategy and distinguish among its
common forms.
7-6 Explain the short- and long-term outcomes of the different types
of restructuring strategies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-1 The Popularity of Merger
and Acquisition Strategies (slide 1 of 2)
• Merger and acquisition (M&A) strategies have
been popular among U.S. firms for many years.
• M&A strategies:
• Played a central role in the restructuring of U.S.
businesses during the 1980s and 1990s
• Are being used with greater frequencies in many
regions of the world today
• Are used to try to create more value for all firm
stakeholders
• Are challenging to effectively implement
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-1 The Popularity of Merger
and Acquisition Strategies (slide 2 of 2)
• Research shows that:
• Shareholders of acquired firms often earn above-average returns
from acquisitions.
• Shareholders of the acquiring firms typically earn returns that are
close to zero.
• The acquiring firm’s stock price often falls immediately after the
transaction is announced.
• Determining the worth of a target firm is difficult.
• This difficulty increases the likelihood a firm will pay a premium
to acquire a target.
• Paying a premium that exceeds the value of a target once
integrated with the acquiring firm can result in negative outcomes.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-1a Mergers, Acquisitions, and
Takeovers: What Are the Differences?
• A merger is a strategy through which two firms agree to integrate
their operations on a relatively coequal basis.
• An acquisition is a strategy through which one firm buys a
controlling, or 100 percent, interest in another firm with the intent of
making the acquired firm a subsidiary business within its portfolio.
• After the acquisition is completed, the management of the acquired firm
reports to the management of the acquiring firm.
• A takeover is a special type of acquisition where the target firm
does not solicit the acquiring firm’s bid; thus, takeovers are
unfriendly acquisitions.
• Acquisitions are more common that mergers and takeovers.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2 Reasons for Acquisitions
• Firms use acquisition strategies to:
• Increase market power
• Overcome entry barriers to new markets or regions
• Avoid the costs of developing new products and
increase the speed of new market entries
• Reduce the risk of entering a new business
• Become more diversified
• Reshape their competitive scope by developing a
different portfolio of businesses
• Enhance their learning as the foundation for
developing new capabilities
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2a Increased Market Power (slide 1 of 3)
• Market power exists when either:
•
•
A firm is able to sell its goods or services above competitive levels.
The costs of a firm’s primary or support activities are lower than those of
its competitors.
• Market power is usually derived from:
•
•
•
The size of the firm
The quality of the resources it uses to compete
Its share of the market(s) in which it competes
• Most acquisitions that are designed to achieve greater market power
entail buying a competitor, a supplier, a distributor, or a business in
a highly related industry so that a core competence can be used to
gain competitive advantage in the acquiring firm’s primary market.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2a Increased Market Power (slide 2 of 3)
• To increase market power, firms use:
•
•
•
Horizontal acquisitions
Vertical acquisitions
Related acquisitions
• These three types of acquisitions are subject to regulatory review by
the government.
Horizontal Acquisitions
• The acquisition of a company competing in the same industry as the
acquiring firm is a horizontal acquisition.
• Horizontal acquisitions:
•
•
Increase a firm’s market power by exploiting cost-based and revenuebased synergies
Result in higher performance when the firms have similar characteristics
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2a Increased Market Power (slide 3 of 3)
Vertical Acquisitions
• A vertical acquisition refers to a firm acquiring a supplier or
distributor of one or more of its products.
• Through a vertical acquisition, the newly formed firm controls
additional parts of the value chain, which leads to increased market
power.
Related Acquisitions
• Acquiring a firm in a highly related industry is called a related
acquisition.
• Through a related acquisition, firms seek to create value through the
synergy that can be generated by integrating resources and
capabilities.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2b Overcoming Entry Barriers
• Barriers to entry are factors associated with a market, or the firms
currently operating in it, that increase the expense and difficulty new
firms encounter when trying to enter a particular market.
•
Examples: Economies of scale and customer loyalty
• The higher the barriers to entry, the greater the probability that a firm
will acquire an existing firm to overcome them.
•
This allows the acquiring firm to gain immediate access to an attractive
market.
Cross-Border Acquisitions
• Acquisitions made between companies with headquarters in
different countries are called cross-border acquisitions.
• Cross-border acquisitions can be difficult to implement due to
various obstacles and differences in foreign cultures.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2c Cost of New Product Development
and Increased Speed to Market (slide 1 of 2)
• Internal product development is often perceived
as a high-risk activity.
• Many firms are not able to achieve adequate returns
compared to the amount of capital they invest to
develop and commercialize the product.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2c Cost of New Product Development
and Increased Speed to Market (slide 2 of 2)
• An acquisition strategy allows a firm to gain
access to new products and to current products
that are new to it.
• Compared with internal product development
processes, acquisitions provide:
• More predictable returns
• This is because the performance of the acquired firm’s products
can be assessed prior to completing the acquisition.
• Faster market entry
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2d Lower Risk Compared to
Developing New Products
• The outcomes of an acquisition can be
estimated more easily and accurately than the
outcomes of an internal product development
process.
• As such, managers may view acquisitions as a way to
avoid risky internal ventures as well as risky research
and development (R&D) investments.
• However, managers must not allow acquisitions to become a
substitute for internal innovation.
• Being dependent on others for innovation leaves a firm
vulnerable and less capable of mastering its own destiny when
it comes to using innovation as a driver of wealth creation.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2e Increased Diversification
• It is relatively uncommon for a firm to develop new
products internally to diversify its product lines.
• It is difficult for companies to develop products that differ from
the current lines for markets in which they lack experience.
• Acquisition strategies can be used to support the use of
both related and unrelated diversification strategies.
• The more related the acquired firm is to the acquiring firm, the
greater is the probability that the acquisition will be successful.
•
Thus, horizontal acquisitions and related acquisitions tend to
contribute more to the firm’s strategic competitiveness than do
acquisitions of companies operating in product markets that differ
from those in which the acquiring firm competes.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2f Reshaping the
Firm’s Competitive Scope
• To reduce the negative effect of an intense
rivalry on financial performance, firms may use
acquisitions to lessen their product and/or
market dependencies.
• Reducing a company’s dependence on specific
products or markets shapes the firm’s competitive
scope.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-2g Learning and
Developing New Capabilities
• Firms sometimes complete acquisitions to gain
access to capabilities they lack.
• Through acquisitions, firms can:
• Broaden their knowledge base
• Reduce inertia
• Firms increase the potential of their capabilities when
they acquire diverse talent through cross-border
acquisitions.
• Firms should seek to acquire companies with different
but related and complementary capabilities as a path
to building their own knowledge base.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3 Problems in Achieving
Acquisition Success
• Among the problems associating with using an
acquisition strategy are:
• The difficulty of effectively integrating the firms involved
• Incorrectly evaluating the target firm’s value
• Creating debt loads that preclude adequate long-term
investments
• Overestimating the potential for synergy
• Creating a firm that is too diversified
• Creating an internal environment in which managers devote
increasing amounts of their time and energy to analyzing and
completing the acquisition
• Developing a combined firm that is too large, necessitating
extensive use of bureaucratic, rather than strategic, controls
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3a Integration Difficulties
• The integration process:
• Is considered by some to be the strongest determinant of whether either
a merger or an acquisition is successful
• Is difficult and challenging
• Tends to generate uncertainty and often resistance because of cultural
clashes and organizational politics
• Among the challenges associated with integration processes are the
need to:
• Meld two or more unique corporate cultures
• Link different financial and information control systems
• Build effective working relationships (particularly when management
styles differ)
• Determine the leadership structure and those who will fill it for the
integrated firm
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3b Inadequate Evaluation
of Target (slide 1 of 2)
• Due diligence is a process through which a potential
acquirer evaluates a target firm for acquisition.
• In an effective due-diligence process, hundreds of items are
examined in areas such as:
• Financing for the intended transaction
• Differences in cultures between the acquiring and target firm
• Tax consequences of the transaction
• Actions that would be necessary to successfully meld the two
workforces
• When conducting due diligence, companies almost
always work with intermediaries, such as a large
investment bank, to facilitate their due-diligence efforts.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3b Inadequate Evaluation
of Target (slide 2 of 2)
• Due diligence should:
• Evaluate the accuracy of the financial position of the target
• Evaluate the accounting standards used by the target
• Examine the quality of the strategic fit between the two
companies
• Examine the ability of the acquiring firm to effectively integrate
the target to realize the potential gains from the deal
• Commonly, firms are willing to pay a premium to acquire
a company they believe will increase their ability to earn
above-average returns.
• The acquiring firm should effectively examine each acquisition
target in order to determine the appropriate amount of premium
to pay.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3c Large or Extraordinary Debt
(slide 1 of 2)
• Firms using an acquisition strategy want to verify
that their purchases do not create a debt load
that overpowers their ability to remain solvent
and vibrant as a competitor.
• Large or extraordinary debt can result from:
• Bidding wars
• Paying a large premium
• Executives sometimes pay a large premium because they
are influenced by:
• Hubris
• Escalation of commitment to complete a particular transaction
• Self-interest
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3c Large or Extraordinary Debt
(slide 2 of 2)
• Junk bonds supported firms’ earlier efforts to take on
large amounts of debt when completing acquisitions.
• Junk bonds are a financing option through which risky
acquisitions are financed with money (debt) that provides a large
potential return to lenders (bondholders).
• Junk bonds:
• Are used less frequently today
• Are commonly called high-yield bonds
• Are unsecured obligations that are not tied to specific assets for
collateral
• Contain high and volatile interest rates
• Potentially expose companies to greater financial risk
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3d Inability to Achieve Synergy
(slide 1 of 2)
• Synergy exists when the value created by units working together
exceeds the value that those units could create working
independently.
• That is, synergy exists when assets are worth more when used in
conjunction with each other than when they are used separately.
• For shareholders, synergy generates gains in their wealth that they
could not duplicate or exceed through their own portfolio
diversification decisions.
• Synergy is created by:
•
•
•
The efficiencies derived from economies of scale
The efficiencies derived from economies of scope
Sharing resources (e.g., human capital and knowledge) across the
businesses in the newly created firm’s portfolio
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3d Inability to Achieve Synergy
(slide 2 of 2)
• A firm develops a competitive advantage through an
acquisition when a transaction generates private synergy.
• Private synergy is created when combining and integrating the
acquiring and acquired firms’ assets yield capabilities and core
competencies that could not be developed by combining and
integrating either firms’ assets with another company.
• Private synergy is:
•
•
•
•
Possible when firms’ assets are complementary in unique ways
Difficult to create
Difficult for competitors to understand and imitate
Affected by direct transaction costs (e.g., legal fees, charges by
investment banks to conduct due diligence) and indirect transaction
costs (e.g., the time spent evaluating targets and negotiating the
acquisition)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3e Too Much Diversification
• Because of the need to process additional amounts of
information, related diversified firms become
overdiversified with a smaller number of business units
than do firms using an unrelated diversification strategy.
• Overdiversification can negatively affect a firm’s overall
performance.
• The scope created by additional amounts of diversification often
causes managers to rely on financial, rather than strategic,
controls to evaluate business units’ performance.
•
Using financial controls causes managers to focus on generating
short-term profits at the expense of long-term investments.
• Costs associated with acquisitions may result in fewer
allocations to activities that are linked to internal innovation.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3f Managers Overly
Focused on Acquisitions
• A considerable amount of managerial time and energy is
required for acquisition strategies to be used successfully.
• Activities with which managers become involved include:
•
•
•
•
Searching for viable acquisition candidates
Completing effective due-diligence processes
Preparing for negotiations
Managing the integration process after completing the acquisition
• Participating in and overseeing these activities can divert
managerial attention from other matters that are necessary for
long-term competitive success.
• Finding the appropriate degree of involvement with the
firm’s acquisition strategy is a challenging, yet important,
task for managers.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-3g Too Large
• The larger firm size generated by acquisitions can:
• Increase the complexity of the managerial challenge
• Create diseconomies of scope
•
That is, the costs of managing the more complex organization
outweigh the economic benefits.
• These complexities generated by the larger size often
lead managers to implement more bureaucratic controls
to manage the combined firm’s operations.
• Bureaucratic controls are formalized supervisory and behavioral
rules and policies designed to ensure consistency of decisions
and actions across a firm’s units.
•
Bureaucratic controls often result in rigid and standardized
managerial behavior, which may produce less innovation over time.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 7.1
Reasons for Acquisitions and Problems in Achieving Success
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-4 Effective Acquisitions (slide 1 of 2)
• Effective acquisitions have the following characteristics:
• The acquiring and target firms have complementary resources that are
the foundation for developing new capabilities.
• The acquisition is friendly, thereby facilitating integration of the firm’s
resources.
• The target firm is selected and purchased on the basis of completing a
thorough due-diligence process.
• The acquiring and target firms have considerable slack in the form of
cash or debt capacity.
• The newly formed firm maintains a low or moderate level of debt by
selling off portions of the acquired firm or some of the acquired firm’s
poorly performing units.
• The acquiring and acquired firms have experience in terms of adapting
to change.
• R&D and innovation are emphasized in the new firm.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-4 Effective Acquisitions (slide 2 of 2)
• Research evidence suggests that the probability
of being able to create value through
acquisitions increases when the nature of the
acquisition and the processes used to complete
it are consistent with the “attributes of successful
acquisitions” (shown on the following two slides).
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Table 7.1
Attributes of Successful Acquisitions (slide 1 of 2)
Attributes
Results
1. Acquired firm has assets or
1. High probability of synergy and
resources that are complementary
competitive advantage by
to the acquiring firm’s core business
maintaining strengths
2. Faster and more effective
integration and possibly lower
premiums
2. Acquisition is friendly
3. Acquiring firm conducts effective
3. Firms with strongest
due diligence to select target firms
complementarities are acquired and
and evaluate the target firm’s health
overpayment is avoided
(financial, cultural, and human
resources)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Table 7.1
Attributes of Successful Acquisitions (slide 2 of 2)
Attributes
Results
4. Financing (debt or equity) is easier
and less costly to obtain
4. Acquiring firm has financial slack
(cash or a favorable debt position)
5. Merged firm maintains low to
moderate debt position
5. Lower financing cost, lower risk
(e.g., of bankruptcy), and avoidance
of trade-offs that are associated
with high debt
6. Acquiring firm maintains long-term
competitive advantage in markets
6. Acquiring firm has a sustained and
consistent emphasis on R&D and
innovation
7. Acquiring firm manages change
well and is flexible and adaptable
7. Faster and more effective
integration facilitates achievement
of synergy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-5 Restructuring
• Restructuring is a strategy through which a firm changes its set of
businesses or its financial structure.
• Commonly, firms focus on fewer products and markets following
restructuring.
• Restructuring strategies are:
• Generally used to deal with acquisitions that are not reaching
expectations
• Sometimes used because of changes detected in the external
environment by the firm
• Firms use three types of restructuring strategies:
1. Downsizing
2. Downscoping
3. Leveraged buyouts
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
7-5a Downsizing
• Downsizing is a reduction in the number of a firm’s
employees and, sometimes, in the number of its
operating units.
• Downsizing is a legitimate strategy to adjust firm size
and is not necessarily a sign of organizational decline.
• Downsizing is an intentional managerial strategy that is used for
the purpose of improving firm performance.
• With downsizing, firms make intentional decisions about resources
to retain and resources to eliminate.
• Organizational decline is an unintentional outcome of what
turned out to be a firm’s ineffective competitive actions.
• With organizational decline, firms lose access to an array of resources,
many of which are critical to current and future performance.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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7-5b Downscoping
• Downscoping refers to divestiture, spin-off, or
some other means of eliminating businesses
that are unrelated to a firm’s core businesses.
• Downscoping:
• Has a more positive effect on firm performance than
does downsizing
• Causes firms to refocus on their core business
• Is often used with downsizing simultaneously
• Is used more frequently in U.S. firms than in European
companies
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7-5c Leveraged Buyouts (slide 1 of 2)
• A leveraged buyout (LBO) is a restructuring strategy
whereby a party (typically a private equity firm) buys all
of a firm’s assets in order to take the firm private.
• Traditionally, LBOs were used as a restructuring
strategy:
• To correct for managerial mistakes
• Because the firm’s managers were making decisions that
primarily served their own interests rather than those of
shareholders
• However, some firms complete LBOs to build firm
resources and expand their operations rather than
simply to restructure a distressed firm’s assets.
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7-5c Leveraged Buyouts (slide 2 of 2)
• Significant amounts of debt are commonly incurred to
finance a buyout.
• To support debt payments and to downscope the firm to focus on
its core businesses, a number of assets may be quickly sold.
• Often, the intent of a buyout is to improve efficiency and
performance to the point where the firm can be sold successfully
within five to eight years.
• There are three types of LBOs:
1. Management buyouts (MBOs)
2. Employee buyouts (EBOs)
3. Whole-firm buyouts
• Because they provide clear managerial incentives,
MBOs have been the most successful of the three.
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Figure 7.2
Restructuring and Outcomes
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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APPENDIX
NOTE TO INSTRUCTOR: Choose from the following questions (also found in the text at the end of the chapter)
to conduct in-class discussions around key chapter concepts.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• Why are merger and acquisition strategies
popular in many firms competing in the global
economy?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What reasons account for firms’ decisions to use
acquisition strategies as a means to achieving
strategic competitiveness?
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Discussion:
• What are the seven primary problems that affect
a firm’s efforts to successfully use an acquisition
strategy?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What are the attributes associated with a
successful acquisition strategy?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What is the restructuring strategy, and what are
its common forms?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What are the short- and long-term outcomes
associated with the different restructuring
strategies?
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Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
CHAPTER
8
International Strategy
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LEARNING OBJECTIVES (slide 1 of 2)
Studying this chapter should provide you with the strategic
management knowledge needed to:
8-1 Explain incentives that can influence firms to use an international
strategy.
8-2 Identify three basic benefits firms gain by successfully
implementing an international strategy.
8-3 Explore the determinants of national advantage as the basis for
international business-level strategies.
8-4 Describe the three international corporate-level strategies.
8-5 Discuss environmental trends affecting the choice of international
strategies, particularly international corporate-level strategies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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LEARNING OBJECTIVES (slide 2 of 2)
Studying this chapter should provide you with the strategic
management knowledge needed to:
8-6 Identify and explain the five modes firms use to enter international
markets.
8-7 Discuss the two major risks of using international strategies.
8-8 Discuss the strategic competitiveness outcomes associated with
international strategies, particularly with an international
diversification strategy.
8-9 Explain two important issues firms should have knowledge about
when using international strategies.
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Figure 8.1
Opportunities and Outcomes of International Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-1 Identifying
International Opportunities
• An international strategy is a strategy through
which the firm sells its goods or services outside
its domestic market.
• There are incentives for firms to use an international
strategy and to diversify their operations
geographically, and they can gain three basic benefits
when they successfully do so.
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Figure 8.2
Incentives and Basic Benefits of International Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-1a Incentives to Use
International Strategy
• Multiple factors and conditions are influencing the
increasing use of international strategies, including
opportunities to:
• Extend a product’s life cycle
• Gain access to critical raw materials, sometimes including
relatively inexpensive labor
• Integrate a firm’s operations on a global scale to better serve
customers in different countries
• Better serve customers whose needs appear to be more alike
today as a result of global communications media and the
Internet’s capabilities to inform
• Meet increasing demand for goods and services that is surfacing
in emerging markets
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8-1b Three Basic Benefits of
International Strategy (slide 1 of 3)
• When used effectively, international strategies yield three basic
benefits:
1. Increased market size
2. Economies of scale and learning
3. Location advantages
Increased Market Size
• Firms can expand their potential market size by using an international
strategy to establish stronger positions outside their domestic market.
• In general, larger international markets:
• Offer higher potential returns
• Pose less risk
• Have a strong science base, which is needed to facilitate efforts to more
effectively sell and/or deliver products that create value for customers
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8-1b Three Basic Benefits of
International Strategy (slide 2 of 3)
Economies of Scale and Learning
• By expanding the number of markets in which they compete, firms
may be able to enjoy economies of scale.
• Firms that make continual process improvements enhance their ability to
reduce costs and increase the value their products create for customers.
• Firms may be able to exploit core competencies in international
markets through resource and knowledge sharing between units and
network partners across country borders.
• By sharing resources and knowledge, firms can learn how to create
synergy, which in turn can help each firm learn how to deliver higher
quality products at a lower cost.
• International markets provide firms with new learning opportunities,
perhaps even in terms of research and development (R&D) activities.
• Increasing R&D ability can contribute to the firm’s efforts to enhance
innovation.
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8-1b Three Basic Benefits of
International Strategy (slide 3 of 3)
Location Advantages
• Locating facilities outside their domestic market can sometimes help
firms reduce costs.
• Other location advantages include easier access to:
•
•
•
•
•
Lower cost labor
Energy
Natural resources
Critical supplies
Customers
• The degree of benefit a firm can capture through a location
advantage is affected by:
• Manufacturing and distribution costs
• The nature of international customers’ needs
• Cultural and formal country institutions (e.g., laws and regulations)
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8-2 International Strategies (slide 1 of 2)
• Firms choose to use one or both basic types of
international strategy:
• Business-level international strategy
• Corporate-level international strategy
• To contribute to the firm’s efforts to achieve
strategic competitiveness in the form of
improved performance and enhanced
innovation, each international strategy the firm
uses must be based on one or more core
competencies.
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8-2 International Strategies (slide 2 of 2)
• At the business level, firms select from among the
generic strategies of:
•
•
•
•
•
Cost leadership
Differentiation
Focused cost leadership
Focused differentiation
Integrated cost leadership/differentiation
• At the corporate level, the following international
strategies are considered:
• Multidomestic
• Global
• Transnational
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8-2a International
Business-Level Strategy (slide 1 of 3)
• Firms considering the use of any international
strategy first develop domestic-market
strategies.
• This is important because some of the capabilities
and core competencies a firm has developed in its
domestic market may possibly be used as the
foundation for competitive success in international
markets.
• However, conditions in a firm’s domestic market affect the
degree to which the firm can build on capabilities and core
competencies it established to create capabilities and core
competencies in international markets.
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8-2a International
Business-Level Strategy (slide 2 of 3)
• Research suggests that there are four
determinants of national advantage:
1. Factors of production
• Factors of production refer to the inputs necessary for a firm
to compete in any industry:
• Labor
• Land
• Natural resources
• Capital
• Infrastructure (transportation, delivery, and communication
systems)
2. Related and supporting industries
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8-2a International
Business-Level Strategy (slide 3 of 3)
3. Demand conditions
• Demand conditions is characterized by the nature and size of
customers’ needs in the home market for the products firms
competing in an industry produce.
• Meeting customers’ demand allows the firm to develop scaleefficient facilities and enhance the capabilities and core
competencies required to use those facilities, as well as use
those enhanced capabilities and core competencies to its
benefit as the firm diversifies geographically.
4. Patterns of firm strategy, structure, and rivalry
• Interactions among the four determinants
influence a firm’s choice of international
business-level strategy.
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Figure 8.3
Determinants of National Advantage
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8-2b International
Corporate-Level Strategy (slide 1 of 5)
• International corporate-level strategy:
• Is based, at least partially, on a firm’s international
business-level strategy
• Focuses on the scope of a firm’s operations through
geographic diversification
• Is required when the firm operates in multiple
industries that are located in multiple countries or
regions and in which it sells multiple products
• Is guided by the headquarters unit
• However, business- or country-level managers can have
substantial strategic input depending on the type of
international corporate-level strategy the firm uses.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-2b International
Corporate-Level Strategy (slide 2 of 5)
• There are three international corporate-level
strategies:
1. Multidomestic
2. Global
3. Transnational
• The three international corporate-level strategies
vary in terms of two dimensions:
1. The need for global integration
2. The need for local responsiveness
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Figure 8.4
International Corporate-Level Strategies
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8-2b International
Corporate-Level Strategy (slide 3 of 5)
Multidomestic Strategy
• A multidomestic strategy is an international strategy in which
strategic and operating decisions are decentralized to the strategic
business units in individual countries or regions for allowing each
unit the opportunity to tailor products to the local market.
• A multidomestic strategy:
• Focuses on competition within each country in which the firm competes
• Is most appropriate for use when the differences between the markets a
firm serves and the customers in them are significant
• Usually expands the firm’s local market share because the firm focuses
its attention on the local clientele’s needs
• Results in less knowledge sharing for the corporation as a whole
because of the differences between markets, decentralization, and the
different international business-level strategies employed by local units
• Does not allow economies of scale to develop and thus can be more costly
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8-2b International
Corporate-Level Strategy (slide 4 of 5)
Global Strategy
• A global strategy is an international strategy in which a firm’s home
office determines the strategies that business units are to use in
each country or region.
• A firm using a global strategy:
• Seeks to develop economies of scale
• Assumes customers throughout the world have similar needs
• A global strategy:
• Assumes more standardization of products across country boundaries
• Offers greater opportunities to take innovations developed at the
corporate level, or in one market, and apply them to other markets
• Is most effective when the differences between markets and the
customers the firm is serving are insignificant
• Requires efficient operations in order to be implemented successfully
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8-2b International
Corporate-Level Strategy (slide 5 of 5)
Transnational Strategy
• A transnational strategy is an international strategy through which
the firm seeks to achieve both global efficiency and local
responsiveness.
• A transnational strategy:
• Integrates characteristics of both multidomestic and global strategies
• Requires “flexible coordination”—building a shared vision and individual
commitment through an integrated network—in order to be implemented
• Is difficult to use because of its conflicting goals
• Can produce higher performance than multidomestic or global
strategies if implemented effectively
• Is becoming increasingly necessary to successfully compete in
international markets
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8-3 Environmental Trends
• Two important trends influencing a firm’s choice
and use of international strategies, particularly
international corporate-level strategies, are:
1. Liability of foreignness
2. Regionalization
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8-3a Liability of Foreignness
• Liability of foreignness is a set of costs
associated with various issues firms face when
entering foreign markets, including:
• Unfamiliar operating environments
• Economic, administrative, and cultural differences
• The challenges of coordination over distances
• Four types of distances associated with liability of
foreignness are:
1. Cultural
2. Administrative
3. Geographic
4. Economic
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8-3b Regionalization
• Some firms choose to concentrate their international
strategies on regions (e.g., the European Union, Asia,
Latin America) rather than on individual country markets.
• Regionalization has numerous benefits:
• It allows a firm to marshal its resources to compete effectively rather
than spread its limited resources across multiple country-specific
international markets.
• Focusing on a particular region allows the firm to better understand
the cultures, legal and social norms, and other factors that are
important for effective competition.
• Markets may be more similar, which would possibly allow
coordination and sharing of resources.
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8-4 Choice of
International Entry Mode
• Firms can use one or more of five entry modes to enter
international markets:
1. Exporting
2. Licensing
3. Strategic alliances
4. Acquisitions
5. New wholly owned subsidiaries
• Each means of market entry has its advantages and
disadvantages, suggesting that the choice of entry mode
can affect the degree of success the firm achieves by
implementing an international strategy.
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Figure 8.5
Modes of Entry and Their Characteristics
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8-4a Exporting
• Exporting is an entry mode through which the firm sends products it
produces in its domestic market to international markets.
• Exporting:
• Is the initial mode of entry used for many firms
• Is a popular entry mode choice for small businesses to initiate an
international strategy
• Requires no foreign manufacturing expertise
• Allows firms to avoid the expense of establishing operations in host
countries (e.g., in countries outside their home countries) in which they
have chosen to compete
• Requires firms to establish some means of marketing and distributing
their products in host countries in which they have chosen to compete
• Can have significant costs (e.g., transportation, tariffs)
• Has been made easier due to the Internet
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8-4b Licensing
• Licensing is an entry mode in which an agreement is formed that
allows a foreign company to purchase the right to manufacture and
sell a firm’s products within a host country’s market.
• The licensor is normally paid a royalty on each unit produced and sold.
• The licensee takes the risks and makes the monetary investments in
facilities for manufacturing, marketing, and distributing products.
• Licensing:
•
•
•
•
•
Is possibly the least costly form of international diversification
Is an attractive entry mode option for smaller and newer firms
Allows firms to obtain a larger market and faster returns for their products
Gives the licensor little control over selling and distribution
Provides the least potential returns because returns must be shared
between the licensor and the licensee
• Carries the risk of a licensee learning a licensor’s technology to produce
and sell a competitive product after the licensing agreement expires
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-4c Strategic Alliances (slide 1 of 2)
• A strategic alliance involves a firm collaborating with
another company in a different setting in order to enter
one or more international markets.
• Strategic alliances are a popular entry mode because
they allow a firm to connect with an experienced partner
already in the market.
• When using strategic alliances:
• Firms share the risks and the resources required to enter
international markets.
• Partners bring their unique resources together for the purpose of
working collaboratively.
• This can facilitate developing new capabilities and core competencies
that may contribute to each firm’s strategic competitiveness.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-4c Strategic Alliances (slide 2 of 2)
• The primary reasons of failure for strategic alliances are:
• Incompatible partners
• Conflict between the partners
• Difficulty in managing
• Establishing trust between partners is critical.
• Alliance success is correlated with the amount of trust.
• Efforts to build trust are affected by the following issues:
• The initial condition of the relationship
• The negotiation process to arrive at an agreement
• Partner interactions
• External events
• The cultures of the countries involved
• The relationships between the countries’ governments
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8-4d Acquisitions
• A cross-border acquisition is an entry mode through which a firm
from one country acquires a stake in or purchases all of a firm
located in another country.
• A cross-border acquisition:
• Often is the quickest means for a firm to enter an international market
• Is used less frequently to enter a market where corruption affects
business transactions
• Is more likely to be used as an entry mode when a firm’s operations are
human-capital intensive
• Is not easy to successfully complete and operate
• Compared to domestic acquisitions, cross-border acquisitions:
• Often require debt financing to complete
• Have more complicated negotiations
• Experience more difficulty in merging the two firms due to different
corporate cultures as well as different social cultures and practices
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8-4e New Wholly Owned Subsidiary
• A greenfield venture is an entry mode through which a firm invests
directly in another country or market by establishing a new wholly
owned subsidiary.
• A greenfield venture:
• Is the most expensive and risky means of entering a new international
market
• Is complex to create
• Affords maximum control to the firm
• Has the greatest amount of potential to contribute to the firm’s strategic
competitiveness
• Is used more prominently when the firm’s business relies significantly on
the quality of its capital-intensive manufacturing facilities
• May require the hiring of a host-country national or consultant in order to
obtain knowledge and expertise about the new market
• May not be a preferable mode of entry when the country risk is high
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8-4f Dynamics of Mode of Entry
• To enter a global market, a firm selects the entry mode
that is best suited to its situation.
• In some instances, the various options will be followed
sequentially, beginning with exporting and eventually leading to
greenfield ventures.
• In other cases, the firm may use several, but not all, of the
different entry modes, each in different markets.
• The decision regarding which entry mode to use is
primarily a result of:
• The industry’s competitive conditions
• The country’s situation and government policies
• The firm’s unique set of resources, capabilities, and core
competencies
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8-5 Risks in an
International Environment
• The two major categories of risks firms need to
understand and address when diversifying
geographically through international strategies
are:
1. Political risks
2. Economic risks
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Figure 8.6
Risks in the International Environment
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8-5a Political Risks
• Political risks denote the probability of disruption of the operations of
multinational enterprises by political forces or events whether they
occur in host countries, home country, or result from changes in the
international environment.
• Possible disruptions to a firm’s operations when seeking to implement
its international strategy create numerous problems, including:
•
•
•
•
Uncertainty created by government regulation
The existence of many, possibly conflicting, legal authorities
Corruption
The potential nationalization of private assets
• Before entering a country or region, firms should conduct a political
risk analysis.
• Through political risk analysis, the firm examines potential sources and
factors of non-commercial disruptions of their foreign investments and
the operations flowing from them.
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8-5b Economic Risks
• Economic risks include fundamental weaknesses in a
country or region’s economy with the potential to cause
adverse effects on firms’ efforts to successfully
implement their international strategies.
• Economic risks of using an international strategy include:
• The perceived security risk of a foreign firm acquiring companies
that have key natural resources or firms that may be considered
strategic with regard to intellectual property
• Terrorism
• Differences and fluctuations in the value of currencies
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8-6 Strategic
Competitiveness Outcomes
• The degree to which firms achieve strategic
competitiveness through international strategies
is expanded or increased when they
successfully implement an international
diversification strategy.
• As an extension or elaboration of international
strategy, an international diversification strategy is
a strategy through which a firm expands the sales of
its goods or services across the borders of global
regions and countries into a potentially large number
of geographic locations or markets.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-6a International
Diversification and Returns
• International diversification should be related positively
to a firm’s performance as measured by the returns it
earns on its investments.
• Firms that are broadly diversified into multiple international
markets usually achieve the most positive stock returns.
• Many factors contribute to the positive effects of
international diversification, such as:
•
•
•
•
•
Private versus government ownership
Potential economies of scale and experience
Location advantages
Increased market size
The opportunity to stabilize returns
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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8-6b Enhanced Innovation
• International diversification facilitates innovation
in a firm because it:
• Provides a larger market to gain greater and faster
returns from investments in innovation
• Exposes the firm to new products and processes
• This enables the firm to integrate this knowledge into its
operations, allowing further innovation to be developed.
• Can generate the resources necessary to sustain a
large-scale R&D program
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8-7 The Challenges of
International Strategies
• A firm using international strategies to pursue
strategic competitiveness often experiences
complex challenges that must be overcome.
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8-7a Complexity of Managing
International Strategies
• A firm that pursues an international strategy may
become more difficult to manage due to:
• The growth in the firm’s size
• Greater operational complexity
• Different cultures and institutional practices (e.g.,
those associated with governmental agencies) that
are part of the countries in which the firm competes
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8-7b Limits to
International Expansion
• Some limits constrain the ability to manage
international expansion effectively.
• International diversification increases coordination
and distribution costs.
• Management problems are exacerbated by:
• Trade barriers
• Logistical costs
• Cultural diversity
• Access to raw materials
• Differences in employee skill levels
• Differences in host countries’ governmental policies and
practices
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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APPENDIX
NOTE TO INSTRUCTOR: Choose from the following questions (also found in the text at the end of the chapter)
to conduct in-class discussions around key chapter concepts.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What incentives influence firms to use
international strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What are the three basic benefits firms can gain
by successfully implementing an international
strategy?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What four factors are determinants of national
advantage and serve as a basis for international
business-level strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What are the three international corporate-level
strategies? What are the advantages and
disadvantages associated with these strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What are some global environmental trends
affecting the choice of international strategies,
particularly international corporate-level
strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What five entry modes do firms use to enter
international markets? What is the typical
sequence in which firms use these entry modes?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Discussion:
• What are political risks and what are economic
risks? How should firms deal with these risks?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What are the strategic competitiveness
outcomes firms can achieve through
international strategies, and particularly through
an international diversification strategy?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What are two important issues that can
potentially affect a firm’s ability to successfully
use international strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
CHAPTER
9
Cooperative Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic
management knowledge needed to:
9-1 Define cooperative strategies and explain why firms use them.
9-2 Define and discuss the three major types of strategic alliances.
9-3 Name the business-level cooperative strategies and describe
their use.
9-4 Discuss the use of corporate-level cooperative strategies.
9-5 Understand why firms use cross-border strategic alliances as an
international cooperative strategy.
9-6 Explain cooperative strategies’ risks.
9-7 Describe two approaches used to manage cooperative strategies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Chapter Introduction
• A cooperative strategy is a means by which
firms collaborate to achieve a shared objective.
• A firm uses a cooperative strategy to:
• Create value for a customer that it likely could not create by
itself
• Try to create competitive advantages
• A competitive advantage developed through a cooperative
strategy often is called a collaborative or relational advantage.
• Outperform its rivals in terms of strategic competitiveness
• Earn above-average returns
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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9-1 Strategic Alliances as a Primary
Type of Cooperative Strategy
• A strategic alliance is a cooperative strategy in which firms
combine some of their resources to create a competitive advantage.
• Strategic alliances:
• Involve firms with some degree of exchange and sharing of resources to
jointly develop, sell, and service goods or services
• Are used by firms to leverage their existing resources while working with
partners to develop additional resources as the foundation for new
competitive advantages
• Examples of cooperative behavior that contribute to alliance success
include:
• Actively solving problems
• Being trustworthy
• Consistently pursuing ways to combine partners’ resources to create
value
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-1a Types of Major
Strategic Alliances (slide 1 of 4)
• Three major types of strategic alliances that
firms use include:
1. Joint ventures
2. Equity strategic alliances
3. Nonequity strategic alliances
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-1a Types of Major
Strategic Alliances (slide 2 of 4)
• A joint venture is a strategic alliance in which two or more
firms create a legally independent company to share some
of their resources to create a competitive advantage.
• Joint ventures:
• Have partners who own equal percentages and contribute
equally to the venture’s operations
• Are often formed to improve a firm’s ability to compete in
uncertain competitive environments
• Joint ventures can be effective in:
• Establishing long-term relationships
• Transferring tacit knowledge between partners
• Because it can’t be codified, tacit knowledge is critical to firms’
efforts to develop competitive advantages.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-1a Types of Major
Strategic Alliances (slide 3 of 4)
• An equity strategic alliance is an alliance in
which two or more firms own different
percentages of a company that they have
formed by combining some of their resources to
create a competitive advantage.
• Companies commonly form equity alliances because
they want to ensure that they have control over assets
that they commit to the alliance.
• Control of firms’ resources, especially intellectual capital, can
be quite important when R&D alliances are formed.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-1a Types of Major
Strategic Alliances (slide 4 of 4)
• An nonequity strategic alliance is an alliance in which
two or more firms develop a contractual relationship to
share some of their resources to create a competitive
advantage.
• Nonequity strategic alliances:
• Are less formal
• Demand fewer partner commitments than do joint ventures and
equity strategic alliances
• Generally do not foster an intimate relationship between partners
• The informality and lower commitment levels make nonequity
strategic alliances unsuitable for complex projects where success
depends on the transfer of tacit knowledge between partners.
• Outsourcing commonly occurs through nonequity strategic
alliances.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-1b Reasons Firms Develop
Strategic Alliances
• Two key reasons why firms form strategic
alliances are:
1. To create value they couldn’t generate by acting
independently and entering markets more rapidly
2. Because most (if not all) companies lack the full set
of resources needed to pursue all identified
opportunities and reach their objectives in the
process of doing so on their own
• The reasons firms use strategic alliances also
vary by slow-cycle, fast-cycle, and standardcycle market conditions.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Figure 9.1
Reasons for Strategic Alliances by Market Type
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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9-2 Business-Level
Cooperative Strategy
• A business-level cooperative strategy is a strategy
through which firms combine some of their resources to
create a competitive advantage by competing in one or
more product markets.
• Four business-level cooperative strategies are used to
help the firm improve its performance in individual
product markets:
1. Complementary strategic alliances
2. Competition response strategy
3. Uncertainty-reducing strategy
4. Competition-reducing strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Figure 9.2
Business-Level Cooperative Strategies
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-2a Complementary
Strategic Alliances
• Complementary strategic alliances are business-level
alliances in which firms share some of their resources in
complementary ways to create a competitive advantage.
• Two dominant types of complementary strategic
alliances are:
1. Vertical
•
In a vertical complementary strategic alliance, firms share some of
their resources from different stages of the value chain to create a
competitive advantage.
2. Horizontal
•
A horizontal complementary strategic alliance is an alliance in
which firms share some of their resources from the same stage (or
stages) of the value chain for creating a competitive advantage.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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Figure 9.3
Vertical and Horizontal Complementary Strategic Alliances
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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9-2b Competition
Response Strategy
• Competition response strategies are formed to
respond to competitors’ actions, especially
strategic actions.
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9-2c Uncertainty-Reducing Strategy
• Uncertainty-reducing strategies are used to
hedge against the risks created by the
conditions of uncertain competitive
environments (such as new product markets).
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9-2d Competition-Reducing
Strategy (slide 1 of 3)
• Competition-reducing strategies are used to
avoid excessive competition while the firm
marshals its resources to improve its strategic
competitiveness.
• Collusion is often used to reduce competition.
• Collusive strategies differ from strategic alliances in
that collusive strategies are often an illegal
cooperative strategy.
• Two types of collusive strategies are:
1. Explicit collusion
2. Tacit collusion
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9-2d Competition-Reducing
Strategy (slide 2 of 3)
• Explicit collusion exists when two or more firms
negotiate directly to jointly agree about the
amount to produce as well as the prices for what
is produced.
• In many economies, explicit collusive strategies are
illegal unless sanctioned by government policies.
• Increasing globalization has led to fewer governmentsanctioned situations involving explicit collusion.
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9-2d Competition-Reducing
Strategy (slide 3 of 3)
• Tacit collusion exists when several firms in an industry
indirectly coordinate their production and pricing
decisions by observing each other’s competitive actions
and responses.
• Tacit collusion:
• Tends to take place in industries dominated by a few large firms
• Results in production output that is below fully competitive levels
and above fully competitive prices
• Can lead to less competition in markets in which both firms operate
• Mutual forbearance is a form of tacit collusion in which firms do
not take competitive actions against rivals they meet in multiple
markets.
• Rather, firms learn how to deter the effects of rivals’ competitive
attacks and responses without resorting to destructive competition.
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9-2e Assessing Business-Level
Cooperative Strategies
• Complementary business-level strategic alliances,
especially vertical ones, have the greatest probability of
creating a sustainable competitive advantage.
• Horizontal complementary alliances are sometimes
difficult to maintain because often they are formed
between firms that compete against each other at the
same time they are cooperating.
• Uncertainty-reducing and competition-reducing
strategies have the lowest probability of creating a
sustainable competitive advantage.
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9-3 Corporate-Level
Cooperative Strategy (slide 1 of 2)
• A corporate-level cooperative strategy is a strategy through which
a firm collaborates with one or more companies to expand its
operations.
• Corporate-level strategic alliances are attractive:
•
•
When a firm seeks to diversify into markets in which the host nation’s
government prevents mergers and acquisitions
Because they can be used as a “test” to determine whether partners
might benefit from a future merger or acquisition between them
• Compared to mergers and acquisitions, corporate-level strategic
alliances:
• Require fewer resource commitments
• Permit greater flexibility in terms of efforts to diversify partners’
operations
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9-3 Corporate-Level
Cooperative Strategy (slide 2 of 2)
• The most commonly used corporate-level
cooperative strategies are:
• Diversifying alliances
• Synergistic alliances
• Franchising
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Figure 9.4
Corporate-Level Cooperative Strategies
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9-3a Diversifying Strategic Alliance
• A diversifying strategic alliance is a strategy in which
firms share some of their resources to engage in product
and/or geographic diversification.
• Companies using this strategy typically seek to enter
new markets (either domestic or outside of their home
setting) with existing products or with newly developed
products.
• Managing diversity gained through alliances has fewer
financial costs but often requires more managerial
expertise.
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9-3b Synergistic Strategic Alliance
• A synergistic strategic alliance is a strategy in
which firms share some of their resources to
create economies of scope.
• Similar to the business-level horizontal
complementary strategic alliance, synergistic
strategic alliances create synergy across
multiple functions or multiple businesses
between partner firms.
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9-3c Franchising (slide 1 of 2)
• Franchising is a strategy in which a firm (the franchisor)
uses a franchise as a contractual relationship to describe
and control the sharing of its resources with its partners
(the franchisees).
• A franchise is a form of business organization in which a firm
that already has a successful product or service (the franchisor)
licenses its trademark and method of doing business to other
businesses (the franchisees) in exchange for an initial franchise
fee and an ongoing royalty rate.
• Franchising’s effectiveness is a product of how well the franchisor
can replicate its success across multiple partners in a cost-effective
way.
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9-3c Franchising (slide 2 of 2)
• Franchising is:
• An alternative to pursuing growth through mergers and acquisitions
• A particularly attractive strategy to use in fragmented industries, such as
hotels and motels and retailing, where no firm has a dominant market
share
• In the most successful franchising strategy, the partners work
closely together.
• The franchisor should develop programs that transfer to the franchisees
the knowledge and skills that are needed to successfully compete at the
local level.
• The franchisee should provide feedback to the franchisor regarding how
their units could become more effective and efficient.
• The core company’s brand name is often the most important
competitive advantage for franchisees.
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9-3d Assessing Corporate-Level
Cooperative Strategies
• Compared with business-level cooperative strategies, corporatelevel cooperative strategies commonly are:
•
•
•
•
Broader in scope
More complex
More challenging
More costly to use
• Corporate-level cooperative strategies can create competitive
advantages and value for customers when:
• Successful alliance experiences are internalized.
• The firm uses such strategies to develop useful knowledge about how to
succeed in the future.
• The firm is able to develop such strategies and manage them in ways
that are valuable, rare, imperfectly imitable, and nonsubstitutable.
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9-4 International
Cooperative Strategy (slide 1 of 2)
• Firms use cross-border strategic alliances as a type of
international cooperative strategy.
• A cross-border strategic alliance is a strategy in which firms
with headquarters in different countries decide to combine some
of their resources to create a competitive advantage.
• In a cross-border strategic alliance, the partners cooperate in one
or more areas such as development and production processes,
partly with the intent to create value in markets throughout the
world that neither firm could create operating independently.
• Cross-border strategic alliances:
• Are increasing in number
• Are not as risky as mergers and acquisitions
• Can be complex
• Can be difficult to manage
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
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9-4 International
Cooperative Strategy (slide 2 of 2)
• Key reasons firms use cross-border alliances include:
• The performance superiority of firms competing in markets outside
their domestic market
• Governmental restrictions on a firm’s efforts to grow through
mergers and acquisitions
• Commonly, cross-border strategic alliances are riskier than their
domestic counterparts, because of:
• The differences in companies and their cultures
• The frequent difficulty in building trust in order to share resources
among the partners
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9-5 Network Cooperative Strategy
• A network cooperative strategy is a strategy by which
several firms agree to form multiple partnerships to
achieve shared objectives.
• A firm’s opportunity to gain access “to its partner’s other
partnerships” is a primary benefit of a network
cooperative strategy.
• Having access to multiple collaborations increases the likelihood
that additional competitive advantages will be formed as the set
of shared resources expands.
• In turn, being able to develop new resources further
stimulates product innovations that are critical to achieving
strategic competitiveness.
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9-5a Alliance Network Types
• The set of strategic alliance partnerships that
firms develop when using a network cooperative
strategy is called an alliance network.
• Alliance networks:
• Can be stable or dynamic
• Vary by industry characteristics
• In mature industries, stable alliance networks are used to
extend competitive advantages into new areas.
• In rapidly changing environments where frequent product
innovations occur, dynamic alliance networks are used
primarily as a tool of innovation.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
9-6 Competitive Risks with
Cooperative Strategies (slide 1 of 2)
• There are four risks that cooperative strategies
often carry.
1. A firm may act in a way that its partner thinks is
opportunistic.
• In general, opportunistic behaviors surface either when:
• Formal contracts fail to prevent them
• An alliance is based on a false perception of partner
trustworthiness
2. A firm misrepresents the resources it can bring to the
partnership.
• This risk is more common when the partner’s contribution is
based on some of its intangible assets.
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9-6 Competitive Risks with
Cooperative Strategi…