BUILD , BORROW ,BUY

Build (Organic growth)

Are your internal resources relevant - This strategy is viable only when the internal resources
(knowledge base, processes & incentive systems) are similar to those you need to develop &
superior to those of competitors in the targeted area.

Developing new resources internally is faster & more effective than obtaining them from third
parties.

1. On existing site – brown field

2. Set on a new site – green field
Example – Maruti in passenger vehicle (1. expands capacity in Manasarovar , 2. New plant in
Gujarat)

Companies often vastly underestimate the actual distance between their existing resources &
targeted resources.

Borrow 1

Are the targeted resources tradable? You can negotiate & write the simplest & most straightforward
contract that will protect the rights of the contracting parties & specify how they will exchange
resources

Look externally for resources, which type of external mode to use –

1. Export –
2. Spot sale – sell when excess supply (only opportunistic & not strategic). MNCs in the initial
stage while varying supply
3. Agent /distributor – Example – commodity chemicals, - cost of transportation advantage.
4. Licensing
Companies license other companies to manufacture their product & as well market.
Royalties will be paid to the parent company
Eg – Gilead Science gave licensed Remdesivir
Firms often overestimate the need for strategic control while underestimating the likelihood
of achieving adequate control through third party relationships.
5. Toll manufacturing .Outsourcing –
Company uses other company’s capacity
Eg – HUL toothpaste manufactured by someone else
FMCG marketing is more important than manufacturing. Marketing is the core competency
6. Franchising
Fast food chains & petrol pumps follows & uses this model
Example – McD outlet not owned by McD

Borrow 2

Desired closeness with response partner.

When the targeted resources are not easily tradable, you will need to consider an alliance or
acquisition. Alliances can be simple agreements or complex relationship involving multistage
contracts, cross investments, complicated rights stipulations.
Joint venture – The company is at mere active in creating demand & also sharing profits. No need of
100% also sharing profits. Eg- Walmart acquiring Flipkart.

(either marketing & distribution or fully integrated)

BUY

Acquisition. Feasibility of target firm integration.

The acquisitions are almost always more time-consuming & expensive than even the most
pessimistic scenario you could imagine. Value strategic control over the targeted resources & less
integrative models will not achieve what you seek from the relationship.

An acquisition will work only if the acquired resources could be fully leveraged to generate
investment opportunities & strong investment performance.