Corporate Lavel Strategy | Mergers And Acquisitions | Joint Venture

Internationalization, Cooperation and Digitalization

By :- Ravi Shivhare

OPENING CASE Realising global ambitions at ³Ranbaxy Laboratories Limited´ 
Incorporated in 1961 by Mohan Singh through collaboration with Lapetit Spa.  Become a public limited co. in 1973  Benefited by copying technologies from other countries  Developed the confidence to enter developed countries like USA & France later.

Internationalisation 
   Did investment in Nigeria in 1977 In 1983 came a joint venture in Malaysia In the late 1980s, it adopted the exports route to several years Next several years, continually internationalised on the basis of acquisitions, holding majority stakes in a bulk of overseas companies  It operates in 50 countries and has manufacturing facilities in 11 countries.

Digitalisation 
Manifested in various websites to specialized services for doctors, patient education  Holds an ERP system with state-of-the-art business With increasing technological sophistication, backed by a strong R&D, as many as 25 global brands and a multicultural workforce of 11,000 employees around the world. ³RANBAXY is truly an Indian MNC in its own right.´

INTERNATIONALIZATION STRATEGIES 
IS are a type of expansion strategies that require organization to market their products or services beyond the domestic and national market.  Steps for expansion internationally:‡ Assess the international environment ‡ evaluate its capacities and devise strategies to enter foreign markets Then it have implement its strategies and monitor and control its foreign operations.

Context for Internationalisation Strategies
Since the end of World War II international trade and investment have grown dramatically. Factors- Trade liberalization - Tariff rates have fallen & cross borders investments have eased considerably - Technological developments reducing the transportation costs - Improvement in communication This has led to the globalization of production & markets.

Porter¶s Model of Competitive Advantage:
Porter has given 4 national characteristics which creates an environment for the competition: 1) 2) 3) 4) Factor Conditions Demand Conditions. Related and Supporting Industries Firm strategy, structure and rivalry

Types of International Strategies
1) Cost Pressure- Minimizing its unit cost. Producing globally standard products. Cost pressures are high in industries like chemicals, petroleum or steel. 1) Pressure for local responsiveness- Pressure from the national level demands .The tastes and preferences, Govt. policies may be different from country to country.

Four types of international strategies

Pressures for cost reduction

GLOBAL STRATEGY

TRANSATIONAL STRATEGY

INTERNATIONAL STRATEGY

MULTIDOMESTIC STRATEGY

Pressures for local responsiveness

International Entry Modes
1) Export Entry Modes: Goods produced in the home country are exported. a) Direct export b) Indirect export 2) Contractual Entry Modes: a) Licensing b) Franchising (the right to use their business format) c) Others forms like technical agreement, service-manufacturing contract etc. 3) Investment Entry Modes: a) Joint Venture b) Independent Ventures or Wholly owned subsidiaries.(the parent international company holds 100% equity.)

Strategic decisions in internationalisation 
Which international markets to enter?  Timing of entry into international markets.  Scale of entry into international markets.

Advantages of Expansion through Internationalization: 
Realizing economies of scale  Realizing economies of scope.  Expansion and extension of market  Assess to resources overseas.

Disadvantages: 
Higher Risks  Difficulty in managing cultural diversity  High Bureaucratic cost  High Distribution cost  Trade Barriers

Regionalisation strategies 
Alan rugman,2000 presented powerful thesis in which he proposed that globalisation is a myth.  Also demonstrated that many of the world¶s largest firms are not global but regionally, in terms of breadth and depth of market coverage.  Regionalisation can be considered as an expression of semiglobalisation.  Regional strategies are: home base, portfolio, hub, platform and mandate strategies.

Strategies for the Bottom-of-the-Pyramid Bottom-of-the The popular phrase µbottom-of-the-pyramid¶ was used by the American president Franklin Roosevelt in a radio speech to denote the economically weaker sections of the society.  BoP is the majority of the world¶s population, estimated to be 4 billion in a total population of 6 billion, who survive on US$2 a day.  The idea of BoP is addressed to the MNCs that have increasingly found the markets saturating at most places they operate in.  The tactics suggested to implement the BoP idea into practice depends on making products and services affordable to poor people.

These tactics could be several, such as: ‡ ‡ ‡ ‡ ‡ Asking for easy payments in installments Dramatic cost cutting Offering products in small packages Charging prices by pay-by-use Direct distribution by avoiding costly marketing intermediaries

Strategies for local companies competing with global companies 
India is very much radar of MNCs.  More and more multinationals are setting up manufacturing operations in India.  Sub section: Emerging Market Economy  It is defined as an economy with low to middle per capita income. i.e. India, China, Pakistan etc.

Industry pressure to globalise

high

Shifting to a new business model or market niche

Contending on a global level

low

Defend by using homefield advantages

Transfer co. expertise to cross border markets

Tailored for home market

Transferable to other countries

Motives for international strategies of Indian organisations 
Internationalisation theories predict that firms internationalise in order to capitalise on their competitive advantages.  The motives for internationalisation of Indian firms may be the constraints of the legal and administrative system and the gradual saturation of the domestic potential.

The Emergence of the Indian MNC 
An MNC is a corporation which has assets in and operates in more than one country.  India is moving fast towards a position where there is widespread awareness among the corporate sector to be globally competitive.  Example, Aditya Birla group, HCL, Ranbaxy, Asian paints etc.

COOPERATIVE STRATEGIES 

Corporate strategies could take in to account the possibility of mutual cooperation with competitors, at the same time competing with them so that the market potential could expand

COOPERATIVE STRATEGIES

MERGERS & ACQUISITIONS OR TAKEOVER

JOINT VENTURES

STRATEGIC ALLIANCES

MERGERS & ACQUISITIONS 
It may be in the form of Amalgamation, Consolidation or Integration.  The real impetus for M& A strategies arose after the liberalization measures of 1991.  According to the Market Research Firm ³Dealogic´ Indian Companies spent over US $ 23 billion in 2006.  It was a jump of over 400 % over that in 2005, in acquiring Foreign Companies. 

Mahindra & Mahindra¶ s take over a 90 % stake in ³Schoneweiss´ a German Company with the experience of 140 years in Foreign Business.  Hutchison Whampoa of Hong Cong sold their controlling stake in Hutchison-Essar to Vodafone for a Whopping US $ 11.1 billion.

MERGERS & ACQUISITIONS

HORIZONTAL MERGERS

VERTICAL MERGERS

COCENTRIC MERGERS

CONGLOMERATE MERGERS

REASONS FOR MERGERS & ACQUISITIONS 
To increase the value of stock.  To increase the growth rate and investment.  To improve the stability of earning & sales.  To avail tax concessions and benefit.  To reduce competition.  To acquire a needed source.

IMPORTANT ISSUE IN MERGERS & ACQUISITIONS 
Strategic issue relate to commonality of strategic interest of Buyer and Seller.  Three Financial Issue: Valuation of Business  Sources of Financing  Taxation Matter  Managerial Issue  Legal Issue

HOW MERGERS AND ACQUISITIONS TAKE PLACE? 
Spell out the objective.  Indicate how the objective would be achieved.  Assess managerial quality.  Check the compatibility of business styles.  Anticipate and solve problems early.  Treat people with dignity and concern.

JOINT VENTURE 

It could be considered as an entity resulting from a long term contractual agreement between two or more parties, to undertake mutually beneficial economic activities, exercise joint control and contribute equity and share in the profits or losses of the entity.

CONDITIONS FOR JOINT VENTURES 
When an activity is uneconomical for an organization.  When the risk of the business has to be shared.  When the distinctive competence of two or more organization can be brought together.

FIVE TRIGGERS OF JOINT VENTURE BY BUSINESS TODAY 
Technology  Geography  Regulation  Sharing of risk and capital  Intellectual exchange

TYPES OF JOINT VENTURE 
Between two Indian organizations in one industry.  Between two Indian organizations across different industry.  Between an Indian organization and foreign organization in India.  Between an Indian organization and foreign organization in foreign country.  Between an Indian organization and a foreign organization in a third country.

BENEFITS & DRAWBACKS IN JOINT VENTURES
ADVANTAGE 
Minimizing risk  Reducing individual company¶s investment  Access to foreign technology  Broad-based equity participation  Access to governmental & political support

DISADVANTAGE 
Problem in equity participation  Foreign exchange regulation 

Lack of proper coordination  Culture & behavioral deference

FAILURE OF JOINT VENTURE BY BUSINESS TODAY 
Change of strategy.  Regulatory change.  Success of joint venture.  Having partners hampers growth.  Lack of transparency.

Strategic alliances 

It is a partnerships between firms whereby their resources, capabilities and core competencies are combined to pursue mutual interest to develop, manufacture or distribute goods or services.

Cont«. 
Two or more firms unite to pursue a set of agreed upon goal, but remain independent subsequent to the formation of the alliances.  The partner firms share the benefits of the alliances and control over the performance of assigned tasks perhaps the most distinctive characteristic of alliances and the one that makes them so difficult to manage.  The partner firms contribute on a continuous basis, in one or more key strategic areas, for example technology, product and so forth.

REASONS FOR STRATEGIC ALLIANCES 

Entering new markets  Reducing manufacturing costs  Developing and diffusing technology

TYPES OF STRATEGIC ALLIANCES

‡ Procompetitive alliances (low interaction/low conflict) ‡ Non competitive alliances (high interaction/low conflict) ‡ Competitive alliances (high interaction/high conflict) ‡ Precompetitive alliances (low interaction/high conflict)

MANAGING STRATEGIC ALLIANCES 

Clearly define a strategy and assign responsibilities.  Phase in the relationship between the partners.  Blend the culture of the partners.  Provide for an exit strategy.

Digitalization Strategies:
Digitalization is a vast subject, encompassing a number of areas such as business, social sciences or technology.

Digitalization is defined as digital coding of information and the growing productivity gains in processing and transmission it enables.

Let us start by looking at some other terms used in the context of digitalization such as computerization, electronization and digitization, networking and telecommunication.

Computerization:
It has been a strategic alternative before organizations since last decades. Computers have become an internal part of the organizational asset configuration as well as inevitable part of its information system.

Electronization:
It is a term to denote progressive conversion of physical data into electronic data through digitisation.

Digitization:
It is technical term denoting the conversion of analogue electrical signals into digital signals, a process takes place for instance, in case of recording music on compact disk, when physical sound waves in the form of electrical sound signals get converted into digital electronic signals.

Digitalization within and beyond organizations:
‡The purpose of computerization was to accelerate the process, thereby making it more productive and efficient. ‡Connected to Public networks through Internet. ‡E-business, E-commerce, E-banking, E-trading, E-learning, E-markets.

Digitalization within and beyond organizations:
12 design principles by Larry Downes And Chunka Mui that guides the For finding and shaping killer apps.

Digitalization, Value chain and value system:
Digitalization transforms the value chain and value system in several different ways: ‡Deconstruction. ‡Disintermediation. ‡Re-intermediation. ‡Industry morphing. ‡Cannibalisation. ‡Techno-intensification. ‡Re-channelling.

Digitalized Business or E-business
‡In 1997 IBM created the term e-business as a part of their advertising campaign. ‡It refers to doing business over the internet. ‡Web-enabled organizations.

Five approaches by Thompson, Strickland and Gamble
‡Using the website to disseminate product information only. ‡Using the website as a minor distribution channels for selling directly to customers. ‡Using the website as one of the major distribution channels to access customers. ‡Using the website as the primary distribution channel to access buyers. ‡Using the website as the exclusive channel to transact sales with customers.

Digitalization Strategies
‡Choosing among the e-business patterns. The structure foundation sets the new rules of the game. ‡Choosing the e-business models. The strategic framework that allows competing in the game. ‡Choosing the e-business designs. The specific strategy for what is needed to be done in the marketplace.

E-business patterns
1. 2. 3. 4. 5. E-channel pattern Click and brick pattern E-portal pattern E-market or Net market pattern. Pure-digital products pattern.

Digitalization strategies in Indian Organizations:
‡ATM facility. ‡HDFC Standard life insurance company. ‡SRL Ranbaxy Ltd. ‡Indian Railways. ‡Surat Milk producers union limited.

Main Points:‡Employing more than 10000 employees. ‡Annual turnover is over US$2.1 billion. ‡The firm focuses on core competence. ‡Ranked no.1 or 2 in their respective businesses. ‡Took risk in 1990 when turnover is 230 crore and invest 100 crore in IT for product development, supply chain management, marketing and to reduce cost as well as time.

‡Entered into joint venture in May 2007 with Gerdau S.A.Brazil for installation of rolling mills. ‡100 % acquisition of RSBconsult Gmbh (RSB) of Germany.

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