1. In
your own words and using referenced quotes describe the difference between
organic growth, merger & acquisition and strategic alliance.
The difference between organic growth, merger & acquisition and
strategic alliance are as follows:
Organic growth:
Organic
growth is sometimes known as ‘organic development’. It has been considered as
the main and primary method of strategy development. It is a strategy where an
organization builds its own capabilities. This is a strategy of “Do it
yourself”.
Merger and
Acquisition:
Ø A
merger is the combination of two previously separate organizations, typically
as more or less equal partners.
Ø An
acquisition involves one firm taking over the ownership (equity) of another n
hence the alternative term ‘takeover’.
Strategic
Alliance:
A strategic
alliance is where two or more organizations share resources and activities to
pursue a strategy. There are two main kinds of ownership in strategic
alliances:
Ø
Equity
alliances involve the creation of new entity that is owned separately by the
partners involved.
Ø
Non
– equity alliances are typically looser without the commitment implied by
ownership.
The main differences between organic growth, merger
& acquisition and strategic alliance are as follows:
Urgency:
The
internal development of organizations might be very slow. Due to lack of
experience, expertise marketing skills it may take a long time and the
development of capabilities might be outdated. For example, if a newly launched
product wants to manufacture raw materials using its capabilities, it may not
be relevant.
Alliance
can little bit accelerate the process. We must remember in alliance two or more
organization cooperates with each other to pursue new industry.
On
the contrary, acquisition is the quickest method of strategy development.
Uncertainty:
In
alliance failure does not indicate the full cost is loss as alliance is risk
sharing. On the other hand, failure of organic growth and acquisition may incur
a huge loss.
Types
of capabilities:
Organic
growth best work with soft resources rather than hard resources. There will be
a cultural consistency because the capabilities are developed with an
organization. Acquisition best work with hard resources and cultural and
valuation problems may arise. Strategic alliance may face difficulties like
culture and control problems.
Modularity
of capabilities:
Organic
growth will be the best strategy if an organization is willing to develop in
new venture units. Strategic alliance will be best if the organization has the
ability to alliance with relevant partner unit. But in acquisition organization
might feel difficulties in buying the whole organization.
2. Give an example of a company that has grown through a) organic growth,
b) merger or acquisition and c) strategic alliance.
Example:
The
organic growth of Procter & Gamble in 2006 , which the company’s personal
care and beauty sales continued to provide organic development to the company
which would exclude any contribution from Gillette, which was acquired by
Procter & Gamble during the prior year.
Organization that has grown
through Merger or acquisition:
Merger:
Disney-Pixar
The Walt Disney Company bought Pixar at a valuation cost of $7.4 billion deal.
a transaction which made Jobs
Disney's largest shareholder. It is regarded as one of the most
successful merger examples in history of growth strategies.
Acquisition:
Procter & Gamble and Gillette
Procter & Gamble announced the largest
acquisition in its history, agreeing to buy Gillette in a $57 billion deal that
combines some of the world's top brands and could lead to further mergers
involving products consumers know and love.
Organization that has grown through Strategic Alliance:
Nokia and
Microsoft
Nokia
and Microsoft on 11th February, 2011 announced plans to form a
broad strategic partnership that would use their complementary strengths and
expertise to create a new global mobile ecosystem. Nokia and Microsoft intend
to jointly create market-leading mobile products and services designed to offer
consumers, operators and developers unrivaled choice and opportunity. As each
company would focus on its core competencies, the partnership would create the
opportunity for rapid time to market execution. Additionally, Nokia and
Microsoft plan to work together to integrate key assets and create completely
new service offerings, while extending established products and services to new
markets.
Figure: Strategic Alliance of
Nokia and Microsoft
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3. Briefly discuss the merger between
Britvic and AG Barr. What advice would you give to the new Board?
Before the merger AG
Barr was the maker of Irn Bru and Britvic was the producer of Tango. After the
merger the new combined company is named as Barr Britvic Soft Drinks plc and
its estimated annual sales is more than £1.5 billion. After the
merger, Britvic shareholders own 63% shares and AG Barr shareholders own 37%
shares.
Followings are the
positives and benefits of merger between AG Bar and Britvic:
Ø They will get a chance to cut their cost in difficult markets.
Where AG Barr is strong in certain market, then it will be easier for Britvic
to go in that market and vice-versa.
Ø The newly combined company will be benefited from scale
production.
Ø Loyal customers of both the company will be buying the products of
the newly merged company. There is a high chance of shift from another brand to
the company’s brand.
Ø Britvic is a bottler for Pepsi by which Barr will be also be in
relation with Pepsi. It will help to increase their sales. Also Barr will be
able to sell their products to the customers of Britvic.
Ø Barr will get extra benefit as the main vision of merger is to get
benefit. For instance, it owns 37% of the share of the combined company and
will contribute to only 16% sales by which it will have a return of 23%.
Ø Britvic will also be benefitted from the Barr. Barr makes an
operating profit of 14%, where Britvic makes only 9%. Although Britvic’s half
of the turnover comes from low margin bottling, Barr will help Britvic to
narrow the gap.
Ø The company will also get huge cash flow which can be used to
cover the debt of Britvic which is around £600 million. Britvic can take
advantage to cover its debt because Barr is almost debt free.
Ø With the combination they will better get a chance to compete with
coke by gaining some market shares.
Following are the
negatives and potential risks of merger between Britvic and Barr:
· When merger takes place
there is high chance to lay off their staffs. Here, Britvic will lay off their
500 staffs. By, doing so the employees remained in the company will feel
unsecured and will not be motivated towards working.
· Britvic owns 63% share
and Barr owns only 37% share, however Barr seems to gain more benefit. Here,
Barr contributes to 16% of the total sales and will get 23% revenue which might
be disadvantageous to Britvic.
· Barr getting in
relationship with Pepsi does not mean that it will get benefited. It is very
hard to shift customers from one brand to another brand.
· Although Barr will get a
chance to sell their drinks to the Britvic’s customers but it might be very
difficult in the case of French drinkers.
· One of the most negative
things is that Britvic has a net debt of £600 million whereas Barr is almost
debt free. It may hamper the economic condition of the newly combined company.
Also, if the debt of Britvic increases, the profit of Barr will be lowered.
· If Britvic fails or go
for bankruptcy, Barr too will be bankrupt. So, special consideration should be
given.
· Customer dissatisfaction
for one product may hamper another product. For instance, if a loyal customer
of Barr has a bad experience with the service or products of Britvic, then the
customer may shift from Barr to other brand as Barr and Britvic are combined.
Hence, there is a high chance of customers shifting to another brand because of
their customers’ dissatisfaction.
· Britvic’s half of the
turnover comes from a low margin bottling hence, merger with Barr may not have
helped Britvic to resolve their problems.
· As market of soft drinks
in UK is growing by less than 2%, merger between these two companies may not
help to increase their market share significantly.
· Although they owns
decent brand but it might not be possible to compete with number one brand
Coke.
Advices and suggestion for newly merged company:
· The newly formed company
should support each other brands.
· They need to maintain an
effective communication.
· Also the newly merged
company’s senior leaders can lead the effort.
· The newly formed company
may research its audiences. For instance, asking the audience what they want
and how they wish to be connected with the company.
· Training and supporting
staffs and providing facilities, bonus and rewards.
· Also if they need to
hire people they need to hire most competitive people in their company.
· The company should have
the same vision and mission.
· They should support each
other in the marketing to gain more customers.
· Shareholders of Britvic
are little bit confused. So, management team must solve their problems.
· They need to invest more
capital so that it can go for large scale.
· They need to develop
strategies by which they can compete with Coke.
Sources:
http://animal-chin.tumblr.com/post/6702845790/the-ingredients-in-irn-bru-are-a-secret-and-the
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References:
Johnson,
Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson
Education, Chapter 6
Johnson,
Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson
Education, Chapter 10
P.
Gaughan, Mergers, Acquisitions and Corporate Restructurings, 4th
edition, Wiley, 2007.
G.
Johnson and K. Scholes (eds), Exploring Techniques of Analysis and
Evaluation in Strategic Management, Prentice Hall, 1998.
J.F.
Mognetti, Organic Growth: Cost-Effective Business Expansion from Within,
Wiley, 2002.
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