Class 3 chapter 14

Mergers and Acquisitions

• A merger is the pooling of interests to combine two or more firms into one.
• An acquisition is the outright purchase of one firm by another.
• Acquiring another business can fulfill several of a company's needs, such as expanding its product line, gaining access to distribution channels, and achieving competitive economies of scale.

The Process of Completing an Acquisition

• The process involves several steps, including negotiation, due diligence, and integration.

Licensing

• The granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions.
• Virtually any intellectual property a company owns that is protected by a patent, trademark, or copyright can be licensed to a third party.
• Types of licensing include:
  • Technology Licensing: the licensing of proprietary technology that the licensor typically controls by virtue of a utility patent.
  • Merchandise and Character Licensing: the licensing of a recognized trademark or brand that the licensor typically controls through a trademark or copyright.

Strategic Alliances and Joint Ventures

• The increase in popularity has been driven by a growing awareness that firms can’t “go it alone” and succeed.
• A strategic alliance is an arrangement between two or more firms that agree to work together to achieve a specific goal.
• A joint venture is a firm that is jointly owned by two or more otherwise independent firms.

International Expansion

• Franchising: an agreement between a franchisor (a company with an established business method and brand) and a franchisee (the owner of one or more franchise units).
• Turnkey Project: a contractor from one country builds a facility in another country, trains the personnel that will operate the facility, and turns over the keys to the project when it is completed and ready to operate.
• Wholly Owned Subsidiary: a company that has made the decision to manufacture a product in a foreign country and establish a permanent presence.

External Growth Strategies

• Mergers and Acquisitions
• Licensing
• Strategic Alliances and Joint Ventures
• Franchising
• Advantages of external growth strategies include:
  • Reducing competition
  • Gaining access to proprietary products or services
  • Gaining access to new products and markets
  • Obtaining access to technical expertise
  • Gaining access to an established brand name
  • Economies of scale
  • Diversification of business risk
• Disadvantages of external growth strategies include:
  • Incompatibility of top management
  • Clash of corporate cultures
  • Operational problems
  • Loss of organizational flexibility
  • Antitrust implications

Additional Internal Product-Related Strategies

• Improving an Existing Product or Service: increasing revenues by simply increasing the quality of an existing product or service.
• Increasing Market Penetration: increasing the sales of a product or service through greater marketing efforts or through increased production capacity.
• Extending Product Lines: making additional variations of a product so it will appeal to a broader range of clientele.
• Geographic Expansion: growth via expanding to additional geographic locations.