Week 16

1) In your own words and using referenced quotes describe the difference between organic growth, merger and acquisition and strategic alliance.

Organic Growth

The strategy that the company uses to expand its business through the use of its own assets and resources is known as Organic growth strategy. “Do It Yourself” is the strategy that is followed by Organic growth. It allows the companies to set and achieve corporate goals in which ever manner they choose to. Quality, PR, headcount and revenue are the four main pillars upon which Organic growth strategies are built.
Organic growth strategies are used by many well-known public companies. Tiffany and company, Outback Steak House and Best Buy are some of them.

The key advantages of organic growth are as follows:-
·         Strategic independence.
·         No availability constraints.
·         Spreading investment over time.
·         Knowledge and learning can be enhanced.

Mergers and Acquisitions:

Mergers and Acquisitions (M&A) is a process of selling, buying, combining & driving of similar entities and different companies so that rapid growth can be achieved in new location or new field, or in the location of its origin or in its sector, without the need of using a joint venture or creating other child entity or subsidiary.

Merger: Integration of stock management, operation and everything else between two companies.

Acquisition: One company buys another company & become one.

The companies to follow this strategy are driven by three strategic motives. They are;

·         Strategic motive (extension, consolidation and capabilities)
·         Managerial motive (Personal ambition, Bandwagon effects)
·         Financial motive (financial efficiency, tax efficiency and assets stripping or unbundling )

Strategic Alliance

Strategic alliance is an agreement made by two companies deciding to share resources for undertaking a specific agreement for the mutual benefits. Strategic alliance lies between organic growth and merger and acquisition (M&A). Equity and non-equity alliance are the two main kinds of ownerships found in strategic alliance. Equity alliances involves the creation of a new entity that is owned separately by the partners involved. Example, Microsoft and Nokia. And, non-equity alliances are typically looser, without the commitment implied by ownership. Examples can be Renault as being a strategic investor in Nissan.

Purposes for Strategic alliances:

·         A complementary alliance is another motive for strategic alliances. It brings together matching strengths to counteract the other partner’s weaknesses.
·         The need for critical mass is the major motives for strategic alliance. It can be achieved by forming partnerships either with the competitors or suppliers of the raw materials. This may drive towards cost reduction, sharing risks and improved customer offering.
·         Co-specialization allows each partner to work and activities that best suit their capabilities. For instance, alliance is widely used when an organization enters into a new market with different geographical characteristics. Now, the company needs local knowledge and knowledge about distribution, marketing, advertising and customer support.

The differences between organic growth, merger and acquisition and strategic alliance are:

1)      Organic growth will be the best strategy if an organization is willing to develop in new venture units. Strategic alliance will be best if the organization has the ability to alliance with relevant partner unit. But in acquisition organization might feel difficulties in buying the whole organization.
2)      Organic growth strategy makes the internal development of organization very slow. Development of capabilities might be outdated because of lack of experience and marketing skills.
Where as in alliance, the development process is better than organic growth, on the contrary,                              acquisition is the quickest method of strategy development.
3)      Organic growth best work with soft resources rather than hard resources. There will be a cultural consistency because the capabilities are developed with an organization. Acquisition best work with hard resources and cultural and valuation problems may arise. Strategic alliance may face difficulties like culture and control problems.

2) Give an example of a company that has grown through a) organic growth, b) merger or acquisition and c) strategic alliance.

Organic Growth

Bibby Line Group is a company which has got the growth through Organic growth. This group is characterized by organic growth. At the beginning of its start in the nineteenth century, it started with just seven ships and over the next 20 years it expanded to acquire another 18 vessels. Originally, Mediterranean ports were its focused routes but as the expansion came it began to support trade with China, India and later in South America. The Bibby Line Group Ships carried variety of cargos from animal hides, sugar, cotton and many other commodities.

          
Image Source: http://www.charitiestrust.org.uk/wp-content/uploads/2012/10/27dc-bibby-img-png.png

Strategic Alliance

Nokia and Microsoft are the two companies that have gone through the strategic alliance. On 11th February 2011, they declared their plans to form a broad strategic partnership that would use their expertise and complementary strengths to create a new global mobile ecosystem. They intend to mutually create market-leading mobile products and services designed to offer developers, operators and customer’s unrivaled opportunity and choice. The partnership would create the opportunity for rapid time to market execution because each company would be focusing on its core competencies.

 Image Source: http://www.digitaltrends.com/wp-content/uploads/2011/02/nokia-plan-to-move-forward-stephen-elop-steve-ballmer.jpg

 

Merger and Acquisition

The best example for Merger & Acquisition (M&A) of Sony Corporation and Ericsson.
Merging of Sony Corporation and Ericsson and becoming Sony Ericsson in October 1, 2001.

Image source: http://cdn.ausdroid.net/wp-content/uploads/2011/10/Sony-Ericsson-Buyout.jpg

The Acquisition of Ericsson’s share by Sony Corporation becoming Sony Mobile Communication in February 16, 2012 can be the best example of Acquisition.

Images source: http://www.houseofjapan.com/electronics/sony-finalizes-divorce-with-ericsson-renames-itself-sony-mobile-communications

3. Briefly discuss the merger between Britvic and AG Barr. What advice would you give to the new board?

The new company “Barr Britvic Soft Drinks PLC” was founded after two separate companies “AG Barr” and “Britvic” merged together to be one. Britvic shareholders hold 63% of shares and AG Barr shareholders holds the remaining 37% shares.

The merger strategies have brings many positive aspects to the company and some of them are:
·         Loyal customers of both the company will be buying the products of the newly merged company. There is a high chance of shift from some other brand to the company’s brand.
·         With the combination, there will be better chance for the company to compete with Coke by entering in some new market and thus gaining market shares.
·         The newly combine company will be benefited from the economy of the scale.
·         The cost reduction is very effective especially in difficult or strong markets because AG Barr is strong in certain market which now will help for Britvic to go in that market and vice versa.


The potential risk of merger between Britvic and Barr are:

·         Britvic’s half of the turnover comes from a low margin bottling hence, merger with Barr may not have helped Britvic to resolve their problems.
·         The customer dissatisfaction for one product has negative impact on another product. For instance, if a loyal customer of Barr has a bad experience with the service or products of Britvic, then the customer may shift from Barr to other brand as Barr and Britvic are combined. Hence, there is a high chance of customers shifting to another brand because of their customers’ dissatisfaction.
·         Britvic’s half of the turnover comes from a low margin bottling hence, merger with Barr may not have helped Britvic to resolve their problems.



Advice and suggestion to the new board:

·         The investment should be increase in order to gain the quick market share and unnecessary expenses should be cutoff.
·         There should be equal support and coordination among the staffs and board members for the new brand.
·         The flow of communication must be effective and the whole company should have common vision and strategy.

References

·         Online available from http://www.business-sale.com/expanding-your-business-through-m-and-a.html  [Accessed March 21, 2013]
·         Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 10
·         Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 6
·         Online available from http://executiveeducation.wharton.upenn.edu/ . [Accessed March 21, 2013]








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