IB - Module 9

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Global advantages
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1. Global Scale; 2. Global sourcing; 3. Global knowledge management; 4. Global operations; 5. Risk diversification
Global scale
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reduces costs in production, product development and marketing; Economies of scale; buy in bulk, cheaper capital, production efficiencies, reduction in both logistics and promotion costs
Economies of scale
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reduction in unit cost is achieved by increasing the volume of production
Global sourcing
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provides access to wider range of inputs
Global knowledge management
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enhances innovation; taps into clusters; centres of excellence
centres of excellence
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specialised centres for innovation that serve the entire MNE
Global operations
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allows to better service global customers
Risk diversification
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reduces the corporate risk profile; more flexible when in need of shifting the focus during the pandemic i.e.
Global strategy - Ghemawat's AAA's
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Aggregation; Adaptation; Arbitrage
Aggregation - general definition
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synergies across borders, integration above national level; i.e. shipping
Adaptation - general definition
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adapting products and services to local markets; sometimes it may jeopardise the aggregation efforts, Heineken
Arbitrage - general definition
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you can buy low in one market and sell high in other market
Minimize adaptation - example
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Heineken; the beer doesn't change, but the way they market it does; Marketing differs, but the product remains the same
Externalize adaptation
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rely on external parties to make local adaptations; i.e. fast food
Modularise adaptation
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cars are produced on a global demand, but some markets allow adaptation for the local markets
Arbitrage types
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Capital - exploit differences in capital; Labor - exploit differences in labor or specialist human capital; Resource arbitrage - exploit variations in geology, climate; Institutional - exploit differences in institutional environment
Cross-border acquisitions
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process of one company gaining control over another firm from another country by purchasing all or most of its shares
Types of Cross-border acquisitions
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Mergers; Acquisitions; Partial acquisitions
Mergers
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mergers of equals - two entities have equal ownership over merged company; statutory mergers - one entity takes control over the second one (Daimler&Chrysler)
Acquisitions
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increase equity stake to majority; full acquisition
Partial acquisitions
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minority stake without strategic control; majority stake with strategic control
Acquisition motives
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Synergistic; Hubris; Managerial
Synergistic motives
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leverage superior organisational; enhance market power; reduce costs by eliminating duplicate units and exploiting scale economies; access complementary resources; tax avoidance
Hubris motives
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managers' overconfidence in their own capabilities
Managerial motives
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self-interest; prestige; CEO narcissism; extreme self-admiration
Challenges for all M&A's - Pre-acquisition phase
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managers overestimate their ability to create value; inadequate due diligence; poor strategic fit
Challenges for cross-border M&A's - Pre-acquisition phase
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Lack of familiarity with foreign cultures, business systems; Nationalistic concern against foreign takeover
Challenges for all M&A's - post-acquisition phase
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Poor organisational fit; failure to address multiple stakeholder groups' concerns
Challenges for cross-border M&A's - post-acquisition phase
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Clashes of organisational cultures compounded by clashes of national cultures; Nationalistic concerns against foreign takeovers
Global key accounts
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global clients
Aggregation - branches
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Consumer electronics, machine tools, aircraft
Adaptation - branches
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food, media, retailing
Arbitrage - branches
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mining, oil&gas, agriculture
overseas listing
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raising capital by listing on a stock exchange abroad
carve-out acquisitions
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acquisition of parts of another company that previously were not clearly organisational units
due diligence
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the assessment of the target firm's financial status, resources and strategic fit
strategic alliances
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collaboration between independent firms using equity modes, non-equity contractual agreements or both
Business Unit Joint Venture
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Joint venture in which existing business units from two firms are merged
Research&Develoment Joint Venture
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JV's aiming to develop next generation technologies
Operational collaboration
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a form of strategic alliance e that includes collaboration in operations, marketing or distribution; common in airline industry
input foreclosure
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practice of vertically integrated firm to cut off a competitor from key suppliers
output foreclosure
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practice of vertically integrated firm to cut off a competition from key customers

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