1. Global Strategy Mike W. Peng c h a p t e r 99 Copyright © 2014 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 Strategy Mike W. Peng Chapter 9 Diversifying, Acquiring, and Restructuring

2. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Outline Product diversification Geographic diversification A comprehensive model of diversification Acquisitions Restructuring Debates and extensions The savvy strategist

3. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Diversification Product-related diversification  Emphasis on operational synergy Product-unrelated diversification  Conglomeration Product diversification and firm performance

4. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Diversification and Firm Performance Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 228), Cincinnati: Cengage South-Western. Figure 9.1

5. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

6. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Geographic Diversification and Firm Performance: An S Curve 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. Figure 9.2

7. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

8. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Combining Product and Geographic Diversification Figure 9.3

9. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

10. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Comprehensive Model of Diversification Figure 9.4

11. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product-Related and -Unrelated Diversification 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 Table 9.1

12. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Determines the Scope of the Firm? Figure 9.5

13. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Evolution of the Scope of the Firm in the United States: 1950–1970 and 1970–1990 Figure 9.6

14. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Optimal Scope of the Firm: Developed versus Emerging Economies at the Same Time 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). Figure 9.7

15. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Acquisitions Setting the terms straight  Acquisition  Merger  Three categories of M&As: horizontal, vertical, conglomerate  Friendly and hostile M&A Motives for M&A: Synergistic, hubris, managerial Performance: Pre- and post-acquisition

16. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Variety of Cross-Border Mergers and Acquisitions Source: Adapted from United Nations, 2000, World Investment Report 2000 (p. 100), New York: UN Figure 9.8

17. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Motives Behind Mergers and Acquisitions 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 Table 9.2

18. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Symptoms of Merger and Acquisition Failures 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) Table 9.3

19. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Stakeholders’ Concerns During Mergers and Acquisitions Figure 9.9

20. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Restructuring Setting the terms straight (Restructuring)  Downsizing  Downscoping  Refocusing Motives for restructuring  Perspectives: Industry, resource, institution Not widely embraced around the world

21. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Relatedness Versus Other Forms of Relatedness Acquisitions Versus Alliances Debates and Extensions

22. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.