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Chapter 9
Corporate Strategy:
Strategic Alliances, Mergers
and Acquisitions
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No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
Learning Objectives
1. Apply the build-borrow-or-buy framework to guide corporate strategy.
2. Define strategic alliances, and explain why they are important to
implement corporate strategy and why firms enter into them.
3. Describe three alliance governance mechanisms and evaluate their
pros and cons.
4. Describe the three phases of alliance management and explain how
an alliance management capability can lead to a competitive
advantage.
5. Differentiate between mergers and acquisitions, and explain why
firms would use either to execute corporate strategy.
6. Define horizontal integration and evaluate the advantages and
disadvantages of this option to execute corporate-level strategy.
7. Explain why firms engage in acquisitions.
8. Evaluate whether mergers and acquisitions lead to competitive
advantage.
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How Firms Achieve Growth
Build:
• Internal organic growth through development.
Borrow:
• External growth through a contract / strategic alliance.
Buy:
• External growth through acquiring new resources,
capabilities, and competencies.
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Guiding Corporate Strategy: The Build-Borrow-or-Buy
Framework
Exhibit 9.1
Source:. Adapted from L. Capron and W. Mitchell (2012), Build, Borrow, or Buy: Solving the Growth Access the text alternate for slide image.
Dilemma (Boston: Harvard Business Review Press).
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Main Issues in the Build-Borrow-Buy
Framework
Relevancy:
• How relevant are the firm’s existing internal resources to solving the resource gap?
Tradability:
• How tradable are the targeted resources that may be available externally?
Closeness:
Integration:
• How well can you integrate the targeted firm should you determine to acquire?
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Relevance
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Tradability
• Transfer ownership.
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Closeness
• Equity alliances
• Joint ventures
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Integration
• Low relevancy.
• Low tradability.
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What are Strategic Alliances?
• Knowledge.
• Resources.
• Capabilities.
To develop:
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Why Do Firms Enter Strategic Alliances?
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Strategic Alliances Can Be Governed By:
Non-Equity Alliances:
Equity Alliances:
Joint Ventures:
• A standalone organization.
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Alliance Management Capability
Exhibit 9.3
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Partner Selection and Alliance Formation
Expected benefits must
exceed the costs.
Five reasons for alliance
formation:
1. Strengthen competitive
position. Partners must be
2. Enter new markets. compatible and
3. Hedge against
committed.
uncertainty.
4. Access critical
complementary
resources.
5. Learn new capabilities.
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Alliance Design and Governance
Governance mechanisms:
• Contractual agreement.
• Equity alliances.
• Joint venture.
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Post Formation Alliance Management
Exhibit 9.4
Source:. Adapted from J.H.
Dyer and H. Singh (1998), “The
relational view: Cooperative
strategy and the sources of
intraorganizational advantage,”
Academy of Management
Access the text alternate for slide image.
Review 23: 660–679.
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Mergers and Acquisitions (M&A)
Merger:
• The joining of two independent companies.
• Tends to be friendly.
Acquisition:
• Purchase of one company by another.
• Considered a hostile takeover when the target firm does not wish to be acquired.
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Mergers and Acquisitions
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Why Do Firms Merge?
Horizontal integration:
• The process of merging with a competitor.
2. Lower costs.
3. Increased differentiation.
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Why Do Firms Acquire Other Firms?
To preempt rivals.
• Facebook and Google are famous for this.
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M&A and Competitive Advantage
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Principal-Agent Problems with M&A
Managerial hubris:
• A form of self-delusion.
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© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.