IB - Module 9

Global advantages

1. Global Scale; 2. Global sourcing; 3. Global knowledge management; 4. Global operations; 5. Risk diversification

Global scale

reduces costs in production, product development and marketing; Economies of scale; buy in bulk, cheaper capital, production efficiencies, reduction in both logistics and promotion costs

Economies of scale

reduction in unit cost is achieved by increasing the volume of production

Global sourcing

provides access to wider range of inputs

Global knowledge management

enhances innovation; taps into clusters; centres of excellence

centres of excellence

specialised centres for innovation that serve the entire MNE

Global operations

allows to better service global customers

Risk diversification

reduces the corporate risk profile; more flexible when in need of shifting the focus during the pandemic i.e.

Global strategy - Ghemawat's AAA's

Aggregation; Adaptation; Arbitrage

Aggregation - general definition

synergies across borders, integration above national level; i.e. shipping

Adaptation - general definition

adapting products and services to local markets; sometimes it may jeopardise the aggregation efforts, Heineken

Arbitrage - general definition

you can buy low in one market and sell high in other market

Minimize adaptation - example

Heineken; the beer doesn't change, but the way they market it does; Marketing differs, but the product remains the same

Externalize adaptation

rely on external parties to make local adaptations; i.e. fast food

Modularise adaptation

cars are produced on a global demand, but some markets allow adaptation for the local markets

Arbitrage types

Capital - exploit differences in capital; Labor - exploit differences in labor or specialist human capital; Resource arbitrage - exploit variations in geology, climate; Institutional - exploit differences in institutional environment

Cross-border acquisitions

process of one company gaining control over another firm from another country by purchasing all or most of its shares

Types of Cross-border acquisitions

Mergers; Acquisitions; Partial acquisitions

Mergers

mergers of equals - two entities have equal ownership over merged company; statutory mergers - one entity takes control over the second one (Daimler&Chrysler)

Acquisitions

increase equity stake to majority; full acquisition

Partial acquisitions

minority stake without strategic control; majority stake with strategic control

Acquisition motives

Synergistic; Hubris; Managerial

Synergistic motives

leverage superior organisational; enhance market power; reduce costs by eliminating duplicate units and exploiting scale economies; access complementary resources; tax avoidance

Hubris motives

managers' overconfidence in their own capabilities

Managerial motives

self-interest; prestige; CEO narcissism; extreme self-admiration

Challenges for all M&A's - Pre-acquisition phase

managers overestimate their ability to create value; inadequate due diligence; poor strategic fit

Challenges for cross-border M&A's - Pre-acquisition phase

Lack of familiarity with foreign cultures, business systems; Nationalistic concern against foreign takeover

Challenges for all M&A's - post-acquisition phase

Poor organisational fit; failure to address multiple stakeholder groups' concerns

Challenges for cross-border M&A's - post-acquisition phase

Clashes of organisational cultures compounded by clashes of national cultures; Nationalistic concerns against foreign takeovers

Global key accounts

global clients

Aggregation - branches

Consumer electronics, machine tools, aircraft

Adaptation - branches

food, media, retailing

Arbitrage - branches

mining, oil&gas, agriculture

overseas listing

raising capital by listing on a stock exchange abroad

carve-out acquisitions

acquisition of parts of another company that previously were not clearly organisational units

due diligence

the assessment of the target firm's financial status, resources and strategic fit

strategic alliances

collaboration between independent firms using equity modes, non-equity contractual agreements or both

Business Unit Joint Venture

Joint venture in which existing business units from two firms are merged

Research&Develoment Joint Venture

JV's aiming to develop next generation technologies

Operational collaboration

a form of strategic alliance e that includes collaboration in operations, marketing or distribution; common in airline industry

input foreclosure

practice of vertically integrated firm to cut off a competitor from key suppliers

output foreclosure

practice of vertically integrated firm to cut off a competition from key customers