MEANS FOR

ACHIEVING
STRATEGIE
S
 COOPERATION AMONG
COMPETITORS
Strategies that stress cooperation among
competitors are being used more. For
collaboration between competitors to
succeed, both firms must contribute
something distinctive, such as technology,
distribution, basic research, or
manufacturing capacity. But the major risk
is that unintended transfers of important
skills or technology may occur at
organizational levels below where the deal
was signed.
JOINT VENTURE/PARTNERING

Joint venture is a popular strategy that

occurs when two or more companies form
a temporary partnership or consortium for
the purpose of capitalizing on some
opportunity.
Other type of cooperative agreements
includes research and development
partnerships, cross-distribution
agreements, cross-licensing agreement,
cross-manufacturing agreements, and
joint-bidding consortia.
Joint ventures and partnerships are often
used to pursue an opportunity that is too
complex, uneconomical, or risky for a
single firm to pursue alone.

Kathryn Rudie Harrigan, professor of

strategic management at Columbia
University, summarizes the trend toward
increased joint venturing:
In today’s global businesses environment
of scarce resources, rapid rates of
technological change, and capital
requirements, the important question is no
longer “Shall we form a joint venture?”
Now the question is “Which joint ventures
and cooperative arrangements are most
appropriate for our needs and
expectations?” followed by “How do we
manage these ventures most effectively??”
Why does many companies chooses joint
venturing strategy?

A major reason why firms are using

partnering as a means to achieve
strategies is globalization. There are
countless examples of successful strategic
alliances, such as internet coverage.
Evidence is mounting firms should use
partnering as a means for achieving
strategies.
 Does it fail?
Although ventures and partnerships are
preferred over mergers as a means for
achieving strategies, certainly they are not
all successful. The good news is that joint
ventures and partnerships are less risky
for companies than mergers, but the bad
news is that many alliances fail. Forbes
has reported that about 30 percent of all
joint ventures and partnership alliances are
outright failures, while another 17 percent
have limited success and then dissipate
due to problems.
 These are countless examples of failed
ventures. A few common problems that cause
joint ventures to fail are as follows:

• Manages who must collaborate daily in

operating the venture are not involved
in forming or shaping the venture.
• The venture may benefit the partnering
companies but may not benefit the
customers, who then complain about
poorer service or criticize the
companies in other ways.
• The venture may not be supported
equally by both partners. If supported
unequally problems arise.

• The venture may begin to compete more

with one of the partners than the other
 Six guidelines for when a joint venture may be an
especially effective means for pursuing strategies are:

• When a privately owned organization is

forming a joint venture with a publicly
owned organization; there are some
advantages to being privately held, such
as closed ownership; there are some
advantages of being publicly held, such
as access to stock issuances as a
source of capital. Sometimes, the unique
advantages of being privately and
publicly held can be synergistically
combined in a joint venture.
• When a domestic organization is forming
a joint venture with a foreign company;
a joint venture can provide a domestic
company with the opportunity for
obtaining local management in a foreign
country, thereby reducing risks such as
expropriation and harassment by host
country officials.
 • When the distinct competencies of two
or more firms complement each other
especially well.
• When some project is potentially very
profitable but requires overwhelming
resources and risks.
• When two or more smaller firms have
trouble competing with a large firm.

• When there exists a need to quickly

introduce a new technology
 MERGER/ACQUISITION

A merger occurs when two organizations

of about equal size unite to form one
enterprise. An acquisition occurs when a
large organization purchase (acquires) a
smaller firm, or vice versa. When merger
or acquisition is not desired by both
parties, it can be called a takeover or
hostile takeover. In contrast, if the
acquisition is desired by both firms, it is
termed a friendly merger. Mostly mergers
are friendly.
 Takeover or Hostile takeover
There were numerous examples in 2009 of
hostile takeover attempts. For example,
Swiss drug company Roche holding AG in
2009 launched an $86.550-a-share hostile
takeover for the 44.2 percent of
Genentech Inc. that it did not already own.
Genentech’s board of directors strongly
urged shareholders not to accept the
Roche Holding offer saying that Roche’s
$40 billion offer was inadequate.
Genentech’s board said the firm was worth
$112 per share at the time. A few weeks
later Roche increased its bid to $93 per
share.
 Does all mergers succeed?
Not all mergers are effective and
successful. Pricewaterhouse Coopers LLP
recently research mergers and found that
the average acquirer’s stock was 3.7
percent lower than its industry peer group
a year later. Business week and the Wall
Street Journal studied mergers and
concluded that about a half produced
negative returns to shareholders.
Warren Buffett once said in a speech that
“too-high purchase price for the stock of
an excellent company can undo the effects
of subsequent decade of favorable
business developments.” Research
suggests that perhaps 20 percent of all
mergers and acquisitions are successful,
approximately 60 percent produce
disappointing results, and the last 20
percent are clear failures. So a merger
between two firms can yield great benefits,
but the price and reasoning must be right.
 key reasons why many mergers and
acquisitions fail
Integration difficulties
Inadequate evaluation of target
Large or extraordinary debt
Inability to achieve synergy
Too much diversification
Managers overly focused on acquisitions
Too large an acquisition
Difficult to integrate different
organizational cultures
Reduced employee morale due to layoffs
and relocations
 Leverage Buyout
a LEVERAGED BUYOUT (LBO) occurs
when a corporation's shareholders are
bought (hence buyout)
by the company's management and other
private investors using borrowed funds
(hence leverage).
Besides trying to avoid a hostile takeover,
other reasons for initiating an LBO are
senior management
decisions that particular divisions do not fit
into an overall corporate strategy or must
be sold to raise
cash or receipt of an attractive offering
price. An LBO takes a corporation private.
 Potential benefits of merging with or
acquiring another firm
• To provide improved capacity utilization
• To make better use of the existing sales force
• To reduce managerial staff
• To gain economics of scale
• To smooth out seasonal trends in sale
• To gain access to new suppliers, distributors,
customers, products, and creditors.
• To gain new technology
• To reduce tax obligation
FIRST MOVER ADVANTAGES
First mover advantages refer to the benefits a firm may achieve by
entering a new market or developing a new product
or service prior to rival firms. As indicated in Table 5-11, some
advantages of being a first mover include security access
to rare resources, gaining new knowledge of key factors and issues
and carving out market share and a position that is easy to defend
and costly for rival firms to overtake.
Being the first mover can be especially wise when such action:
1. build a firm's image and reputation with buyers
2. produce cost advantages over rivals in terms of new
technologies, new components, new distribution channels, and so
on.
3. create strongly loyal customers
4. make imitation or duplication by a rival hard or unlikely.

example of a first mover firm is APPLE INC.

slow mover called FAST FOLLOWER OR LATE MOVER
Outsourcing
Business-process outsourcing (BPO) is rapidly growing
new business that involves companies taking over the
functional operation, such as human resources, information
system, payroll, accounting, customer service and even
marketing of other firms Companies are choosing to
outsource their functional operations more and more for
several reasons:
 Allows the firm to align itself with “best-in-world”
suppliers who focus on performing the special task.
 Provides the firm flexibility should customer needs shift
unexpectedly
 Allows the firm to concentrate on other internal value
chain activities critical to sustaining competitive
advantage. BPO is means for achieving strategies that
are similar to partnering and joint venturing. The
worldwide BPO market exceeds $173 billion.
Benefits of a firm being the first mover
Secure access and commitments to rare
resources.
Gain new knowledge of critical success
factors and issues
Gain market share and position in the
best locations
Establish and secure long-term
relationships with customers, suppliers,
distributors and investors
Gain customer loyalty and commitments