9
9
hapter
c chapter
Diversifying, Acquiring,
and Restructuring
Part III: Corporate-Level Strategies
Global Strategy
Mike W. Peng
Copyright © 2009 Cengage.
All rights reserved.
PowerPoint Presentation by John Bowen, Columbus State Community College
Outline
• Product diversification
• Geographic diversification
• Combining product and geographic
diversification
• A comprehensive model of diversification
• Acquisitions
• Restructuring
• Debates and extensions
• The savvy strategist
Copyright © 2009 Cengage. All rights reserved.
9–2
Product Diversification
• Product-related diversification
 Emphasis on operational synergy
• Product-unrelated diversification
 Conglomeration
• Product diversification and firm performance
Copyright © 2009 Cengage. All rights reserved.
9–3
Product Diversification and Firm Performance
Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004,
Competing for Advantage (p. 228), Cincinnati: Thomson South-Western.
Copyright © 2009 Cengage. All rights reserved.
Figure 9.1
9–4
Geographic (International) Diversification
Geographic
Diversification
Limited International Scope
Extensive International Scope
(geographically and culturally
adjacent countries)
(beyond geographically and
culturally neighboring countries)
Copyright © 2009 Cengage. All rights reserved.
9–5
Geographic Diversification
• International diversification
• Limited international scope
 Geographically and culturally adjacent countries
• Extensive international scope
 Beyond geographically and culturally neighboring
countries
• Geographic diversification and firm performance
Copyright © 2009 Cengage. All rights reserved.
9–6
Geographic Diversification and Firm Performance: An S
Curve
Source: Adapted from F. Contractor, S. K. Kundu, & C.-C. Hsu, 2003, A three stage
theory of international expansion: The link between multinationality and performance in
the service sector (p. 7), Journal of International Business Studies, 34: 5–18.
Copyright © 2009 Cengage. All rights reserved.
Figure 9.2
9–7
Combining Product and Geographic
Diversification
• Entertain both dimensions of diversification
simultaneously
• Four possible combinations
 Anchored replicators
 Multinational replicators
 Far-flung conglomerates
 Classic conglomerates
• Migrate from one cell to another strategically
Copyright © 2009 Cengage. All rights reserved.
9–8
Combining Product and Geographic Diversification
Figure 9.3
Copyright © 2009 Cengage. All rights reserved.
9–9
A Comprehensive Model of
Diversification
• Industry-based considerations
 Growth opportunity
 Structural attractiveness of an industry (Porter’s five
forces)
• Resource-based considerations: VRIO
• Institution-based considerations: Formal,
informal
• The evolution of the scope of the firm: Benefits
and costs - economic, bureaucratic, marginal
Copyright © 2009 Cengage. All rights reserved.
9–10
A Comprehensive
Model of
Diversification
Figure 9.4
Copyright © 2009 Cengage. All rights reserved.
9–11
Product-Related and -Unrelated Diversification
PRODUCT-RELATED DIVERSIFICATION
PRODUCT-UNRELATED DIVERSIFICATION
Synergy
Operational synergy
Financial synergy
Economies
Economies of scale
Economies of scope
Control emphasis
Strategic (behavior) control
Financial (output) control
Organizational structure
Centralization
Decentralization
Organizational culture
Cooperative
Competitive
Information processing
Intensive, rich communication
Less intensive communication
Table 9.1
Copyright © 2009 Cengage. All rights reserved.
9–12
Institution-Based Considerations
Formal Institutions
Informal Institutions
Promote product unrelated
diversification by banning
intraindustry mergers
Normative pressures to jump on
the diversification “bandwagon”
Enable or constrain geographic
diversification by loosening or
tightening FDI policies
Internalized, cognitive beliefs
guide managerial action (e.g.,
empire building)
Copyright © 2009 Cengage. All rights reserved.
9–13
What Determines the Scope of the Firm?
Source: Adapted from G. Jones & C. Hill, 1988, Transaction cost analysis of
strategy-structure choices (p. 166), Strategic Management Journal, 9: 159–172.
Copyright © 2009 Cengage. All rights reserved.
Figure 9.5
9–14
The Evolution of the Scope of the Firm in the
United States: 1950–1970 and 1970–1990
Source: M. W. Peng, S. H. Lee, & D. Wang, 2005, What determines the scope of the firm over
time? A focus on institutional relatedness, Academy of Management Review (in press).
Copyright © 2009 Cengage. All rights reserved.
Figure 9.6
9–15
The Optimal Scope of the Firm: Developed versus
Emerging Economies at the Same Time
Source: M. W. Peng, S.-H. Lee, & D. Wang, 2005, What determines the scope of the firm over
time? A focus on institutional relatedness, Academy of Management Review (in press).
Copyright © 2009 Cengage. All rights reserved.
Figure 9.7
9–16
Acquisitions
• Setting the terms straight
 Acquisition
 Merger
 Cross-border M&A, three primary categories: merger,
vertical, conglomerate
 Friendly and hostile M&A
• Motives for M&A: Synergistic, hubris, managerial
• Performance: Pre- and post-acquisition
Copyright © 2009 Cengage. All rights reserved.
9–17
Understanding Cross-Border M&As
Source: Adapted from United Nations, 2000, World
Investment Report 2000 (p. 100), New York: UN
Copyright © 2009 Cengage. All rights reserved.
Figure 9.8
9–18
Motives Behind Mergers and Acquisitions
Synergistic motives
INDUSTRY-BASED ISSUES
RESOURCE-BASED ISSUES
INSTITUTION-BASED ISSUES
 Enhance and consolidate
market power
 Leverage superior
managerial capabilities
 Respond to formal institutional
constraints and transitions
 Overcome entry barriers
 Access to complementary
resources
 Take advantage of market
opening and globalization
 Reduce risk
 Scope economies
Hubris motives
Managerial motives
 Learning and developing
new skills
 Managers’ over-confidence
in their capabilities
 Herd behavior-following norms and
chasing fads of M&As
 Self-interested actions such as
empire-building guided by
informal norms and cognitions
Table 9.2
Copyright © 2009 Cengage. All rights reserved.
9–19
Symptoms of Merger and Acquisition Failures
PARTICULAR PROBLEMS FOR
Pre-acquisition: Overpayment
for targets
Post-acquisition: Failure in
integration
PROBLEMS FOR ALL M&As
CROSS-BORDER M&As
 Managers overestimate their ability
to create value
 Lack of familiarity with foreign cultures,
institutions, and business systems
 Inadequate pre-acquisition screening
 Inadequate number of worthy targets
 Poor strategic fit
 Nationalistic concerns against foreign
takeovers (political and media levels)
 Poor organizational fit
 Clashes of organizational cultures
compounded by clashes of national cultures
 Failure to address multiple
stakeholder groups’ concerns
 Nationalistic concerns against foreign
takeovers (firm and employee levels)
Table 9.3
Copyright © 2009 Cengage. All rights reserved.
9–20
Stakeholders’ Concerns During Mergers and Acquisitions
Figure 9.9
Copyright © 2009 Cengage. All rights reserved.
9–21
Restructuring
• Setting the terms straight (Restructuring)
 Downsizing
 Down scoping
 Refocusing
• Motives for restructuring
 Perspectives: Industry, resource, institution
• Increasing the odds for acquisition success
Copyright © 2009 Cengage. All rights reserved.
9–22
Debates and Extensions
Product Relatedness Versus
Other Forms of Relatedness
Acquisitions Versus Alliances
Copyright © 2009 Cengage. All rights reserved.
9–23
The Savvy Strategist
• Understand the nature of your industry that may
call for diversification, acquisitions, and
restructuring.
• Develop capabilities that facilitate successful
acquisitions and restructuring.
• Master the rules of the game governing
acquisitions and restructuring around the world.
Copyright © 2009 Cengage. All rights reserved.
9–24