1. Global Strategy Mike W. Peng c h a p t e r 99 Copyright © 2009 Cengage.PowerPoint Presentation by John Bowen, Columbus State Community College All rights reserved. Diversifying, Acquiring, and Restructuring Part III: Corporate-Level Strategies Global Strategy Mike W. Peng chapter 9 9

2. Copyright © 2009 Cengage. All rights reserved.9–2 Outline Product diversification Geographic diversification Combining product and geographic diversification A comprehensive model of diversification Acquisitions Restructuring Debates and extensions The savvy strategist

3. Copyright © 2009 Cengage. All rights reserved.9–3 Product Diversification Product-related diversification  Emphasis on operational synergy Product-unrelated diversification  Conglomeration Product diversification and firm performance

4. Copyright © 2009 Cengage. All rights reserved.9–4 Product Diversification and Firm Performance Figure 9.1 Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 228), Cincinnati: Thomson South-Western.

5. Copyright © 2009 Cengage. All rights reserved.9–5 Geographic (International) Diversification Geographic Diversification Limited International Scope (geographically and culturally adjacent countries) Extensive International Scope (beyond geographically and culturally neighboring countries)

6. Copyright © 2009 Cengage. All rights reserved.9–6 Geographic Diversification International diversification Limited international scope  Geographically and culturally adjacent countries Extensive international scope  Beyond geographically and culturally neighboring countries Geographic diversification and firm performance

7. Copyright © 2009 Cengage. All rights reserved.9–7 Geographic Diversification and Firm Performance: An S Curve Figure 9.2 Source: Adapted from F. Contractor, S. K. Kundu, & C.-C. Hsu, 2003, A three stage theory of international expansion: The link between multinationality and performance in the service sector (p. 7), Journal of International Business Studies, 34: 5–18.

8. Copyright © 2009 Cengage. All rights reserved.9–8 Combining Product and Geographic Diversification Entertain both dimensions of diversification simultaneously Four possible combinations  Anchored replicators  Multinational replicators  Far-flung conglomerates  Classic conglomerates Migrate from one cell to another strategically

9. Copyright © 2009 Cengage. All rights reserved.9–9 Combining Product and Geographic Diversification Figure 9.3

10. Copyright © 2009 Cengage. All rights reserved.9–10 A Comprehensive Model of Diversification Industry-based considerations  Growth opportunity  Structural attractiveness of an industry (Porter’s five forces) Resource-based considerations: VRIO Institution-based considerations: Formal, informal The evolution of the scope of the firm: Benefits and costs - economic, bureaucratic, marginal

11. Copyright © 2009 Cengage. All rights reserved.9–11 A Comprehensive Model of Diversification Figure 9.4

12. Copyright © 2009 Cengage. All rights reserved.9–12 Product-Related and -Unrelated Diversification Table 9.1 PRODUCT-RELATED DIVERSIFICATIONPRODUCT-UNRELATED DIVERSIFICATION SynergyOperational synergyFinancial synergy EconomiesEconomies of scaleEconomies of scope Control emphasisStrategic (behavior) controlFinancial (output) control Organizational structureCentralizationDecentralization Organizational cultureCooperativeCompetitive Information processingIntensive, rich communicationLess intensive communication

13. Copyright © 2009 Cengage. All rights reserved.9–13 Formal Institutions Promote product unrelated diversification by banning intraindustry mergers Enable or constrain geographic diversification by loosening or tightening FDI policies Internalized, cognitive beliefs guide managerial action (e.g., empire building) Normative pressures to jump on the diversification “bandwagon” Informal Institutions Institution-Based Considerations

14. Copyright © 2009 Cengage. All rights reserved.9–14 What Determines the Scope of the Firm? Figure 9.5 Source: Adapted from G. Jones & C. Hill, 1988, Transaction cost analysis of strategy-structure choices (p. 166), Strategic Management Journal, 9: 159–172.

15. Copyright © 2009 Cengage. All rights reserved.9–15 The Evolution of the Scope of the Firm in the United States: 1950–1970 and 1970–1990 Figure 9.6 Source: M. W. Peng, S. H. Lee, & D. Wang, 2005, What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review (in press).

16. Copyright © 2009 Cengage. All rights reserved.9–16 The Optimal Scope of the Firm: Developed versus Emerging Economies at the Same Time Figure 9.7 Source: M. W. Peng, S.-H. Lee, & D. Wang, 2005, What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review (in press).

17. Copyright © 2009 Cengage. All rights reserved.9–17 Acquisitions Setting the terms straight  Acquisition  Merger  Cross-border M&A, three primary categories: merger, vertical, conglomerate  Friendly and hostile M&A Motives for M&A: Synergistic, hubris, managerial Performance: Pre- and post-acquisition

18. Copyright © 2009 Cengage. All rights reserved.9–18 Understanding Cross-Border M&As Figure 9.8 Source: Adapted from United Nations, 2000, World Investment Report 2000 (p. 100), New York: UN

19. Copyright © 2009 Cengage. All rights reserved.9–19 Motives Behind Mergers and Acquisitions Table 9.2 INDUSTRY-BASED ISSUESRESOURCE-BASED ISSUESINSTITUTION-BASED ISSUES Synergistic motives  Enhance and consolidate market power  Leverage superior managerial capabilities  Respond to formal institutional constraints and transitions  Overcome entry barriers  Access to complementary resources  Take advantage of market opening and globalization  Reduce risk  Scope economies  Learning and developing new skills Hubris motives  Managers’ over-confidence in their capabilities  Herd behavior-following norms and chasing fads of M&As Managerial motives  Self-interested actions such as empire-building guided by informal norms and cognitions

20. Copyright © 2009 Cengage. All rights reserved.9–20 Symptoms of Merger and Acquisition Failures Table 9.3 PARTICULAR PROBLEMS FOR CROSS-BORDER M&AsPROBLEMS FOR ALL M&As Pre-acquisition: Overpayment for targets  Managers overestimate their ability to create value  Lack of familiarity with foreign cultures, institutions, and business systems  Inadequate pre-acquisition screening  Inadequate number of worthy targets  Poor strategic fit  Nationalistic concerns against foreign takeovers (political and media levels) Post-acquisition: Failure in integration  Poor organizational fit  Clashes of organizational cultures compounded by clashes of national cultures  Failure to address multiple stakeholder groups’ concerns  Nationalistic concerns against foreign takeovers (firm and employee levels)

21. Copyright © 2009 Cengage. All rights reserved.9–21 Stakeholders’ Concerns During Mergers and Acquisitions Figure 9.9

22. Copyright © 2009 Cengage. All rights reserved.9–22 Restructuring Setting the terms straight (Restructuring)  Downsizing  Down scoping  Refocusing Motives for restructuring  Perspectives: Industry, resource, institution Increasing the odds for acquisition success

23. Copyright © 2009 Cengage. All rights reserved.9–23 Product Relatedness Versus Other Forms of Relatedness Acquisitions Versus Alliances Debates and Extensions

24. Copyright © 2009 Cengage. All rights reserved.9–24 The Savvy Strategist Understand the nature of your industry that may call for diversification, acquisitions, and restructuring. Develop capabilities that facilitate successful acquisitions and restructuring. Master the rules of the game governing acquisitions and restructuring around the world.