mgmt4210 final 3

  1. horizontal integration (industrial consolidation) - motivations
    • Lower costs (economies of scope and scale)
    • Acquire access to complementary resources (knowledge, products, market access)
    • Reduction of competitive intensity
    • Pre-emption of competitors
  2. vertical integration - motivations
    • Overcome barrier to entry
    • achieve synergies
    • Acquire access to complementary resources (knowledge, products, market access)
    • Increase negotiating power
    • Pre-emption of competitors
  3. diversification- motivation
    • Overcome barriers to entry
    • Acquire access to complementary resources
  4. Why M&A on average creates value for the sellers and destroys value for the buyers
    • Integration failures (corporate cultures, Failure to realize potential synergies, Loss of valuable resources)
    • Winner’s curse
    • Principal-agent problem (enhance the standing on the managers)
    • Managerial hubris (managers may believe they are better than the average)
  5. How to have successful M&A
    Well-developed processes for identifying, evaluating, bidding for and integrating acquisitions (VRIO resource)
  6. Strategic alliances – eg
    • R&D agreement
    • licensing agreement
    • joint production agreement
  7. Strategic alliances – motivation
    • Combine complementary resources
    • Cheaper and lesser commitment than an outright acquisition
    • Hedge against uncertainty due to the creation of real options (especially in JVs and equity alliances)
    • Learn new capabilities and exchange of tacit knowledge
    • Meet regulatory requirements
  8. Strategic alliances – risk
    • Cooperation failures - the danger of partner opportunism due to misalignment of incentives (Shirking (withholding of resources), Hold-up (opportunistic renegotiations), Misappropriations (e.g., stealing knowledge))
    • Coordination failures- inefficient and/or ineffective combination
    • Weakening of relative competitive position  learning races
  9. Effective alliance management – key questions
    • Alliance partner selection (searching for and evaluating prospective partners)
    • Alliance design and governance (overarching structure of the alliance, details of the alliance contract
    • Post-formation alliance management (monitor and assess the progress of the alliance, continue/build on/terminate the alliance)
  10. questions to consider about the search for alliance partners - Cooperation-related concerns
    • Alignment of incentives (direct competitors?, one stand to benefit more than the other?)
    • trust due to prior interactions, relationships b/w leaders
    • trust due to shared partners(provide ex ante referrals, endorsements, sanction ex post opportunism)
  11. questions to consider about the search for alliance partners - Coordination-related concerns
    • Quality/quantity of partner’s resources
    • Compatibility of the partner’s resources (Similarity)
    • Complementarity of the partner’s resources (total combined contribution of the parties worth more than the sum of its parts)
  12. Contractual agreements – pros and cons
    • Flexible
    • Fast and cheap to initiate and terminate
    • Lesser protections against partner opportunism
  13. Equity alliances - pros and cons
    • Creating stronger tie & alignment of incentives
    • Optionality
    • Up-front investments
    • Break-up is more costly
  14. Joint ventures - pros and cons
    • Greater transparency of performance & relative contributions
    • Significant protections against opportunism
    • Most expensive and slow to initiate & terminate
  15. questions to consider in structuring the alliance contracts –Cooperation-related concerns
    • Level of alignment of interests and trust (more alignment means simpler contracts, less hierarchic arrangements)
    • Opportunities to cheat and corresponding protections that can be built into the governance of the alliance:
    • Shirking (withholding of resources)  clauses regarding expected contributions and monitoring mechanisms; more equity commitments
    • Hold-up (opportunistic renegotiations)  contingency clauses, exchange of hostages
    • Misappropriations (e.g., stealing knowledge)  info exchange protections
  16. questions to consider in structuring the alliance contracts - Coordination-related concerns
    • higher complexity may require more formal coordination mechanisms
    • Uncertainty and the need for adaptation  may necessitate more formal coordination arrangements
    • Accumulated experience from past collaborations
  17. Post-formation alliance management –Monitoring
    Assessing the progress of the collaboration, diagnose, behavior of the alliance partner, external environment and recognizing potential opportunities and threats of the collaboration
  18. Post-formation alliance management – Renegotiating
    adjustments in the governance, contractual clauses or their implementations
  19. Post-formation alliance management - Following up
    • whether and when to terminate , expand the scope, make additional investments, buy out the partner
    • Codify any learnings
Card Set
mgmt4210 final 3
mgmt4210 final 3