© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Business 2e C ha p t e r 12 Making Alliances and Acquisitions Work

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Define alliance and acquisition. 2.Articulate how institutions and resources influence alliances and acquisitions. 3.Describe how alliances are formed. 4.Outline how alliances are evolved and dissolved. 5.Discuss how alliances perform. 6.Explain why firms make acquisitions. 7.Understand why acquisitions often fail. 8.Participate in two leading debates on alliances and acquisitions. 9.Draw implications for action.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. DEFINING ALLIANCES AND ACQUISITIONS Strategic alliance Voluntary agreement between firms involving exchange, sharing, or co-developing of products, technologies, or services Contractual (non-equity based) alliances Associations between firms that are based on contracts and do not involve the sharing of ownership

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. DEFINING ALLIANCES AND ACQUISITIONS Equity-based alliances Alliances based on ownership or financial interest between the firms Strategic investment One firm invests in another as a strategic investor Cross-shareholding Both firms invest in each other to become cross- shareholders.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. DEFINING ALLIANCES AND ACQUISITIONS Acquisition Transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter Merger Combination of operations and management of two firms to establish a new legal entity

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

RESOURCES AND ALLIANCES Real option An investment in real operations as opposed to financial capital

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. RESOURCES AND ALLIANCES Relational (or collaborative) capabilities Ability to manage interfirm relationships Learning race Situation in which alliance partners aim to outrun each other by learning the “tricks” from the other side as fast as possible ? What types of things would a firm seek to learn in a learning race?

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RESOURCES AND ALLIANCES Acquisition premium Difference between the acquisition price and the market value of target firms Strategic fit Effective matching of complementary strategic capabilities Organizational fit Similarity in cultures, systems, and structures

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EVOLUTION AND DISSOLUTION OF ALLIANCES Firms can combat the threat of opportunism by: Walling off critical capabilities, or Swapping critical capabilites through credible commitments.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ALLIANCE DISSOLUTION Initiator Party who begins the process of ending the alliance ? Can you think of other ways in which an alliance is like a marriage?

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MOTIVES FOR ACQUISITIONS Hubris Over-confidence in one’s capabilities Managerial motives Managers’ desire for power, prestige, and money, which may lead to decisions that do not benefit the firm overall in the long run

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