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Global StrategyGlobal StrategyMike W. PengMike W. Peng
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Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved. Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved.
Diversifying, Acquiring, and Restructuring
Diversifying, Acquiring, and Restructuring
Part III: Corporate-Level Strategies
Global StrategyGlobal StrategyMike W. PengMike W. Peng
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Copyright © 2009 Cengage. All rights reserved. 9–2
Outline
• Product diversification
• Geographic diversification
• Combining product and geographic diversification
• A comprehensive model of diversification
• Acquisitions
• Restructuring
• Debates and extensions
• The savvy strategist
Copyright © 2009 Cengage. All rights reserved. 9–3
Product Diversification
• Product-related diversificationEmphasis on operational synergy
• Product-unrelated diversificationConglomeration
• Product diversification and firm performance
Copyright © 2009 Cengage. All rights reserved. 9–4
Product Diversification and Firm Performance
Figure 9.1Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 228), Cincinnati: Thomson South-Western.
Copyright © 2009 Cengage. All rights reserved. 9–5
Geographic (International) Diversification
Geographic Geographic DiversificationDiversification
Geographic Geographic DiversificationDiversification
Limited International ScopeLimited International Scope(geographically and culturally (geographically and culturally
adjacent countries)adjacent countries)
Limited International ScopeLimited International Scope(geographically and culturally (geographically and culturally
adjacent countries)adjacent countries)
Extensive International ScopeExtensive International Scope(beyond geographically and (beyond geographically and
culturally neighboring countries)culturally neighboring countries)
Extensive International ScopeExtensive International Scope(beyond geographically and (beyond geographically and
culturally neighboring countries)culturally neighboring countries)
Copyright © 2009 Cengage. All rights reserved. 9–6
Geographic Diversification
• International diversification
• Limited international scopeGeographically and culturally adjacent
countries
• Extensive international scopeBeyond geographically and culturally
neighboring countries
• Geographic diversification and firm performance
Copyright © 2009 Cengage. All rights reserved. 9–7
Geographic Diversification and Firm Performance: An S Curve
Figure 9.2
Source: Adapted from F. Contractor, S. K. Kundu, & C.-C. Hsu, 2003, A three stage theory of international expansion: The link between multinationality and performance in the service sector (p. 7), Journal of International Business Studies, 34: 5–18.
Copyright © 2009 Cengage. All rights reserved. 9–8
Combining Product and Geographic Diversification
• Entertain both dimensions of diversification simultaneously
• Four possible combinations
Anchored replicators
Multinational replicators
Far-flung conglomerates
Classic conglomerates
• Migrate from one cell to another strategically
Copyright © 2009 Cengage. All rights reserved. 9–9
Combining Product and Geographic Diversification
Figure 9.3
Copyright © 2009 Cengage. All rights reserved. 9–10
A Comprehensive Model of Diversification
• Industry-based considerationsGrowth opportunityStructural attractiveness of an industry
(Porter’s five forces)
• Resource-based considerations: VRIO
• Institution-based considerations: Formal, informal
• The evolution of the scope of the firm: Benefits and costs - economic, bureaucratic, marginal
Copyright © 2009 Cengage. All rights reserved. 9–11
A Comprehensive Model of Diversification
Figure 9.4
Copyright © 2009 Cengage. All rights reserved. 9–12
Product-Related and -Unrelated Diversification
Table 9.1
PRODUCT-RELATED DIVERSIFICATION PRODUCT-UNRELATED DIVERSIFICATION
Synergy Operational synergy Financial synergy
Economies Economies of scale Economies of scope
Control emphasis Strategic (behavior) control Financial (output) control
Organizational structure Centralization Decentralization
Organizational culture Cooperative Competitive
Information processing Intensive, rich communication Less intensive communication
Copyright © 2009 Cengage. All rights reserved. 9–13
Formal InstitutionsFormal InstitutionsFormal InstitutionsFormal Institutions
Promote product unrelated diversification by banning
intraindustry mergers
Promote product unrelated diversification by banning
intraindustry mergers
Enable or constrain geographic diversification by loosening or
tightening FDI policies
Enable or constrain geographic diversification by loosening or
tightening FDI policies
Internalized, cognitive beliefs guide managerial action (e.g.,
empire building)
Internalized, cognitive beliefs guide managerial action (e.g.,
empire building)
Normative pressures to jump on the diversification “bandwagon”
Normative pressures to jump on the diversification “bandwagon”
Informal InstitutionsInformal InstitutionsInformal InstitutionsInformal Institutions
Institution-Based Considerations
Copyright © 2009 Cengage. All rights reserved. 9–14
What Determines the Scope of the Firm?
Figure 9.5Source: Adapted from G. Jones & C. Hill, 1988, Transaction cost analysis of strategy-structure choices (p. 166), Strategic Management Journal, 9: 159–172.
Copyright © 2009 Cengage. All rights reserved. 9–15
The Evolution of the Scope of the Firm in the United States: 1950–1970 and 1970–1990
Figure 9.6Source: M. W. Peng, S. H. Lee, & D. Wang, 2005, What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review (in press).
Copyright © 2009 Cengage. All rights reserved. 9–16
The Optimal Scope of the Firm: Developed versus Emerging Economies at the Same Time
Figure 9.7Source: M. W. Peng, S.-H. Lee, & D. Wang, 2005, What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review (in press).
Copyright © 2009 Cengage. All rights reserved. 9–17
Acquisitions
• Setting the terms straightAcquisition
Merger
Cross-border M&A, three primary categories: merger, vertical, conglomerate
Friendly and hostile M&A
• Motives for M&A: Synergistic, hubris, managerial
• Performance: Pre- and post-acquisition
Copyright © 2009 Cengage. All rights reserved. 9–18
Understanding Cross-Border M&As
Figure 9.8Source: Adapted from United Nations, 2000, World Investment Report 2000 (p. 100), New York: UN
Copyright © 2009 Cengage. All rights reserved. 9–19
Motives Behind Mergers and Acquisitions
Table 9.2
INDUSTRY-BASED ISSUES RESOURCE-BASED ISSUES INSTITUTION-BASED ISSUES
Synergistic motives Enhance and consolidate market power
Leverage superior managerial capabilities
Respond to formal institutional constraints and transitions
Overcome entry barriers Access to complementary resources
Take advantage of market opening and globalization Reduce risk
Scope economies Learning and developing new skills
Hubris motives Managers’ over-confidence in their capabilities
Herd behavior-following norms and chasing fads of M&As
Managerial motives Self-interested actions such as empire-building guided by informal norms and cognitions
Copyright © 2009 Cengage. All rights reserved. 9–20
Symptoms of Merger and Acquisition Failures
Table 9.3
PARTICULAR PROBLEMS FOR
CROSS-BORDER M&AsPROBLEMS FOR ALL M&As
Pre-acquisition: Overpaymentfor targets
Managers overestimate their ability to create value
Lack of familiarity with foreign cultures, institutions, and business systems
Inadequate pre-acquisition screening Inadequate number of worthy targets
Poor strategic fit Nationalistic concerns against foreign takeovers (political and media levels)
Post-acquisition: Failure inintegration
Poor organizational fit Clashes of organizational cultures compounded by clashes of national cultures
Failure to address multiple stakeholder groups’ concerns
Nationalistic concerns against foreign takeovers (firm and employee levels)
Copyright © 2009 Cengage. All rights reserved. 9–21
Stakeholders’ Concerns During Mergers and Acquisitions
Figure 9.9
Copyright © 2009 Cengage. All rights reserved. 9–22
Restructuring
• Setting the terms straight (Restructuring)DownsizingDown scopingRefocusing
• Motives for restructuringPerspectives: Industry, resource, institution
• Increasing the odds for acquisition success
Copyright © 2009 Cengage. All rights reserved. 9–23
Product Relatedness Versus Product Relatedness Versus Other Forms of RelatednessOther Forms of Relatedness
Product Relatedness Versus Product Relatedness Versus Other Forms of RelatednessOther Forms of Relatedness
Acquisitions Versus AlliancesAcquisitions Versus AlliancesAcquisitions Versus AlliancesAcquisitions Versus Alliances
Debates and Extensions
Copyright © 2009 Cengage. All rights reserved. 9–24
The Savvy Strategist
• Understand the nature of your industry that may call for diversification, acquisitions, and restructuring.
• Develop capabilities that facilitate successful acquisitions and restructuring.
• Master the rules of the game governing acquisitions and restructuring around the world.