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Chapter 6. Supplementing the Chosen Competitive Strategy. Strategic Alliances Joint Ventures Vertical Integration Outsourcing Mergers & Acquisitions. Cooperative Strategies.

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Chapter 6

Chapter 6

Supplementing the Chosen Competitive Strategy



Cooperative strategies
Cooperative Strategies

  • Strategic Alliance – formal agreement between two or more companies in which there is a strategically relevant collaboration.

  • Joint Venture – when two or more firms contribute resources to the creation of a third organization in an effort to pursue some mutually beneficial activity.


Advantages of alliances jvs
Advantages of Alliances/JVs

  • Gain access to new global markets

  • Gain knowledge about unfamiliar markets or cultures

  • Gain access or master new technologies

  • Gain access to complementary resources


Keys to alliance jv success
Keys to Alliance/JV Success

  • Picking the right partner

  • Sensitivity to cultural differences

  • Must be win-win

  • Mutual commitment

  • Swift decision making structures

  • Managing the learning process

  • Maintaining flexibility


Who makes a geo
Who Makes a Geo?

Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse.

Geo Prizm = Toyota Corolla

Geo Tracker = Suzuki Sidekick

Geo Metro = Suzuki Esteem or Swift w/hatchback

No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.


Vertical integration
Vertical Integration

Operating in more than one stage of the industry value chain

  • partial/taper or full integration

  • forward or backward

    Benefits

    • can not be held hostage – reduces buyer/supplier power

    • greater control over operations

    • access to new business/technologies

    • reduce procurement and sales efforts

      Risks

    • increased overhead, capital and administrative costs

    • loss of flexibility

    • different competencies may be requires

    • unbalanced capacities and increased risk

    • reaction of competitors


Vertical integration1
Vertical Integration

  • Will add value when:

    • Enhance critical activities that lower costs or increase differentiation

    • Benefits exceed the costs

    • Enhances competitive capabilities


Outsourcing
Outsourcing

  • Farming out specific activities to others, allowing the firm to focus on more critical activities and core competencies


Outsourcing works when
Outsourcing Works When:

  • Others can do it better and cheaper

  • Not a core competency

  • Reduces the companies’ risk to technology changes

  • Improves the company’s innovation

  • Streamlines operations and increases flexibility

  • Assemble diverse expertise


Mergers and Acquisitions

Reasons of Acquisitions

Cost Efficiencies

Geographic Expansion

Product/Market Extensions

Increased Speed

Lower Risk

New Technologies

Invest in New Industry or

Create Convergence


Mergers and Acquisitions

Problems with Acquisitions

Integration of two firms

Overpayment/Debt

Overestimation of Synergy

Overdiversification

Managerial energy absorption

Become too large

Substitute for innovation


Mergers and Acquisitions

Results

Poor

Performance

Who Wins?

Acquired Firm

Shareholders


Monday october 27 th wsj
Monday October 27th WSJ

  • Bank of American – Boston Fleet Financial

    • BoA down $8.29, or 10%, BFF rose 23%

  • Anthem – WellPoint Health Networks

    • Anthem down 8.2%, WellPoint up 8.8%

  • United Health – MidAtlantic Med Services

    • UH down 4.9%, MAMS up 9.7%


Failures of acquisitions
Failures of Acquisitions

30 - 40% average acquisition premium

Acquiring firm’s value drops 4% in the 3 months following acquisitions

30 - 50% of acquisitions are later divested

Acquirers underperform S&P by 14%, peers by 4%

3 month performance before and after

  • 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns


Why then do executives acquire
Why, then, do executives acquire?

Often, for personal reasons

Firm size and executive compensation are related

When do executives loss their jobs?

  • 1) Acquired - larger firms harder to acquire

  • 2) Performing poorly - employment risk is reduced as returns are less volatile


Competitive dynamics
Competitive Dynamics

  • Competitive action within an industry

  • Strategic and tactical action does not occur within a vacuum

  • What industries have high competitive dynamics?

  • What sort of actions/tactics are taken?


Drivers of competitive dynamics
Drivers of Competitive Dynamics

  • numerous/equally balanced competitors

  • slow growth

  • high fixed/storage costs

  • lack of differentiation/switching costs

  • high exit barriers

  • Etc…

Competitive

Dynamics

Rivalry


Competition in the pharmaceutical industry
Competition in the Pharmaceutical Industry

  • Reps quadrupled to 120K last 10-15 years

  • 12B on sales force, 2.76B on ads

  • Managed care bet – Pfizer from 14th to 1st

  • 529 visits yearly, average length – 2.5 min

    • 8% remember

  • Glaxo can reach 80% of the Drs in a week

  • “Is this necessary. No, but if my competitors do it and I can’t, then I’m at a disadvantage. This has been an arms race in the worst possible manner.”


Types of competitive responses
Types of Competitive Responses

  • First Movers - initial competitive action

    • advantages and disadvantages

  • Fast Followers or Capable Competitors- respond quickly to first movers

  • Late Entrants - day late and a dollar short


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