Class 3 chapter 14

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Questions and Answers

What is the main difference between a merger and an acquisition?

A merger is the pooling of interests to combine two or more firms into one, while an acquisition is the outright purchase of one firm by another (correct)

A merger is a domestic strategy, while an acquisition is an international strategy

A merger is a short-term strategy, while an acquisition is a long-term strategy

A merger is a friendly takeover, while an acquisition is a hostile one

What is one of the purposes of acquiring another business?

To expand its product line (correct)

To decrease the company's market value

To reduce the workforce

To increase the company's debt

What is the arrangement where a firm grants permission to another firm to manufacture a product for specified royalties or payments?

Licensing (correct)

Franchising

Joint Venture

Turnkey Project

What is licensing in the context of business?

The granting of permission by one company to another company to use a specific form of its intellectual property Signup and view all the answers

What type of strategy involves a contractor building a facility in another country and training personnel?

Turnkey Project Signup and view all the answers

What is a licensing agreement?

A contract that outlines the terms of a license Signup and view all the answers

What is the advantage of external growth strategies in terms of competition?

Reducing competition Signup and view all the answers

What is technology licensing?

The licensing of proprietary technology Signup and view all the answers

What is driving the increase in popularity of strategic alliances and joint ventures?

The awareness that firms can't 'go it alone' and succeed Signup and view all the answers

What is the disadvantage of external growth strategies related to corporate culture?

Clash of corporate cultures Signup and view all the answers

What is the main benefit of a strategic alliance?

Access to new markets and resources Signup and view all the answers

What is the benefit of external growth strategies in terms of products and services?

Gaining access to new products and markets Signup and view all the answers

What is the goal of post-merger integration?

To achieve synergies and create a more efficient organization Signup and view all the answers

What is the type of company that has a permanent presence in a foreign country?

Wholly Owned Subsidiary Signup and view all the answers

What is the advantage of external growth strategies in terms of business risk?

Diversification of business risk Signup and view all the answers

What is the type of agreement between a franchisor and a franchisee?

Franchising Signup and view all the answers

What can a business do to increase its revenues?

Increase the quality of an existing product or service Signup and view all the answers

What is the purpose of extending product lines?

To appeal to a broader range of clientele Signup and view all the answers

What is international expansion?

Selling products or services in multiple countries Signup and view all the answers

What is exporting?

Producing a product at home and shipping it to a foreign market Signup and view all the answers

What is a joint venture?

A firm that is jointly owned by two or more otherwise independent firms Signup and view all the answers

What is the benefit of international expansion?

Increased competitive advantage Signup and view all the answers

What is the purpose of geographic expansion?

To increase the sales of a product or service Signup and view all the answers

What is the benefit of improving an existing product or service?

Increased revenues Signup and view all the answers

Study Notes

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

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.

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Description

This quiz covers international expansion strategies, including licensing and franchising agreements. It defines licensing as an arrangement where a firm with proprietary rights grants permission to manufacture a product for royalties or payments. It also explains franchising as an agreement between a franchisor and franchisee.