Topic 8 Competitive Strategy and Strategic Alliances Dr. Songporn Hansanti Environment of Business Topic 8 Competitive Strategy and Strategic Alliances Dr. Songporn Hansanti

Competitor Analyses Internal Assessments Dr. Songporn Hansanti Environment of Business Competitor Analyses Internal Assessments External Assessments: Analyzing Competitor Operations Strategic Alliances

Who are they? Nature of business operation Direct Competitor Dr. Songporn Hansanti Environment of Business Who are they? Nature of business operation Direct Competitor Indirect Competitor

Competitor Analyses Uses of Competitor Analysis Dr. Songporn Hansanti Environment of Business Competitor Analyses Uses of Competitor Analysis provides insights into rivals’ strategies and enable companies to: Outwit Rivals - detect marketplace changes more quickly than competitors Outmaneuver Rivals - Being the first to introduce new products and technologies Outperform Rivals - In terms of new product development, market share, customer satisfaction levels and corporate reputation

Competitor Analysis Internal Assessments Dr. Songporn Hansanti Environment of Business Competitor Analysis Internal Assessments Corporate missions: provide overviews of corporate priorities in terms of products, markets, technology, and corporate culture Strategic intents: relate to long-term competitive aspirations Core competencies: are articulations of what companies do better than others – their acknowledged expertise vis-à-vis the rest of the industry: innovation styling, value

Dr. Songporn Hansanti Collaborative Strategies Environment of Business Collaborative Strategies

Benefits of Strategic Alliances Dr. Songporn Hansanti Environment of Business Benefits of Strategic Alliances Potential Benefits of Strategic Alliances Ease of Market Entry Shared Risk Shared Knowledge and Expertise Synergy and Competitive Advantage

Scope of Strategic Alliances Dr. Songporn Hansanti Environment of Business Scope of Strategic Alliances Significant variation Comprehensive alliance Narrowly defined alliance Degree of collaboration depends upon basic goals of each partner

Types of Alliances Comprehensive Functional Production Marketing Dr. Songporn Hansanti Environment of Business Types of Alliances Comprehensive Functional Production Marketing Financial Research and Development

Implementation of Strategic Alliances Dr. Songporn Hansanti Environment of Business Implementation of Strategic Alliances Selection of partners Compatibility Nature of potential partner’s products or services Relative safeness of the alliance Learning potential of the alliance

Joint Management Considerations Dr. Songporn Hansanti Environment of Business Joint Management Considerations Shared management agreements Assigned arrangements Delegated arrangements

Shared Management Agreement Dr. Songporn Hansanti Environment of Business Shared Management Agreement Partner 1 Partner 2 Both partners participate actively Alliance

primary responsibility Dr. Songporn Hansanti Environment of Business Assigned Arrangement Partner 1 Partner 2 One partner takes primary responsibility Alliance

Delegated Arrangement Dr. Songporn Hansanti Environment of Business Delegated Arrangement Partner 1 Partner 2 Both partners delegate management to the joint venture’s executives Joint Venture

Pitfalls of Strategic Alliances Dr. Songporn Hansanti Environment of Business Pitfalls of Strategic Alliances Pitfalls of Strategic Alliances Incompatibility of partners Access to Information Distribution of Earnings Loss of Autonomy Changing Circum- stances

Dr. Songporn Hansanti Environment of Business Beijing Jeep – A joint venture between American Motors Company (part of Daimler Chrysler) and Beijing Auto Works

Merger & Acquisition (M&A) Dr. Songporn Hansanti Environment of Business Merger & Acquisition (M&A) Technological change Efficiency of operations Globalization and freer trade Changes in industry organization New industries Deregulation and regulation Favorable economic and financial conditions Negative trends in industries and economies Widening inequalities in income and wealth

Dr. Songporn Hansanti Environment of Business Merger เป็นการรวมที่ไม่จำเป็นต้องตั้งบริษัทใหม่ ซึ่งการรวมกันจะเป็นตกลงกันว่าจะเลิกบริษัทใด แล้วแต่จะตกลงกัน เช่น บริษัท สปามหาวินาศ และ บริษัท สปาเทวาบรรลัย ต่างประกอบกิจการ ได้รวมกิจการเข้าด้วยกัน เหลือเพียง บริษัท สปามหาวินาศ เพียงบริษัทเดียว ซึ่งการรวมแบบนี้อาจจะเรียกได้ว่า Acquisition ซึ่งเป็นการซื้อกิจการของบริษัทอื่น อาจซื้อเพียงทรัพย์สิน หรือทั้งทรัพย์สินและหนี้สิน (โอนกิจการ) หรืออาจเป็นเข้าไปซื้อหุ้นเพื่อให้เพียงพอกับการเข้าไปได้บริหารกิจการ (Take Over)

Dr. Songporn Hansanti Environment of Business Merger เป็นการรวมที่ไม่จำเป็นต้องตั้งบริษัทใหม่ ซึ่งการรวมกันจะเป็นตกลงกันว่าจะเลิกบริษัทใด แล้วแต่จะตกลงกัน เช่น บริษัท สปามหาวินาศ และ บริษัท สปาเทวาบรรลัย ต่างประกอบกิจการ ได้รวมกิจการเข้าด้วยกัน เหลือเพียง บริษัท สปามหาวินาศ เพียงบริษัทเดียว ซึ่งการรวมแบบนี้อาจจะเรียกได้ว่า Acquisition ซึ่งเป็นการซื้อกิจการของบริษัทอื่น อาจซื้อเพียงทรัพย์สิน หรือทั้งทรัพย์สินและหนี้สิน (โอนกิจการ) หรืออาจเป็นเข้าไปซื้อหุ้นเพื่อให้เพียงพอกับการเข้าไปได้บริหารกิจการ (Take Over)

Consolidation or Amalgamation Dr. Songporn Hansanti Environment of Business Consolidation or Amalgamation คือการรวมกิจการที่ตั้งบริษัทใหม่ และยกเลิกบริษัทเดิม บริษัทใหม่นี้ต้องเป็นชื่อใหม่ มีการออกหุ้นใหม่ ผู้ถือหุ้นของบริษัทเดิมจะได้รับหุ้นสามัญของบริษัทใหม่แทนของบริษัทเดิม เช่น บริษัท สูดดมอ๊อกซิไดซ์ และ บริษัท เป่าและดม ต่างประกอบกิจการผลิตยาดม ได้รวมกิจการเข้าด้วยกัน และจดทะเบียนใหม่ชื่อ บริษัท สูดเป่าและดม

M&A Terminology Merger Negotiated deals Mutuality of negotiations Dr. Songporn Hansanti Environment of Business M&A Terminology Merger Negotiated deals Mutuality of negotiations Mostly friendly Restructuring — changes to improve operations, policies, and strategies

Types of Mergers Horizontal mergers Vertical mergers Dr. Songporn Hansanti Environment of Business Types of Mergers Horizontal mergers Between firms in same business activity Rationale Economies of scale and scope Synergies (ex. combining of best practices) Government regulation due to potential anticompetitive effects Vertical mergers Combinations between firms at different stages Goal is information and transaction efficiency

Dr. Songporn Hansanti Environment of Business M&A

Dr. Songporn Hansanti Environment of Business M&A Strategy Defines the long-term plans, policies and culture of an organization Strategic planning is a dynamic process that requires inputs from all segments of the organization Acquisition and restructuring policies and decisions should be part of the company's overall strategic plans and processes Ultimate responsibility for strategic planning resides in the top executive group

Strategic Planning Processes in M&A Dr. Songporn Hansanti Environment of Business Strategic Planning Processes in M&A Essential elements in strategic planning Assessment of changes in the environments Evaluation of company capabilities and limitations Assessment of expectations of stakeholders Analysis of company, competitors, industry, domestic economy and international economies Formulation of the missions, goals and policies for the master strategy Development of sensitivity to critical environmental changes

Strategic Planning Processes in M&A Dr. Songporn Hansanti Environment of Business Strategic Planning Processes in M&A Essential elements in strategic planning Formulation of organization performance measurements and benchmarks Formulation of long-range strategy programs Formulation of mid-range programs and short-run plans Organization, funding and other methods to implement all of the preceding elements Information flow and feedback system for continued repetition of above activities and for adjustments and changes at each stage Review and evaluation of above processes

Strategic Planning Processes in M&A Dr. Songporn Hansanti Environment of Business Strategic Planning Processes in M&A Monitoring environments Should encompass both domestic and international dimensions Include analysis of economic, social, technological, political, and legal factors Strategy also deals with stakeholders – groups with interests in the firm and its actions Organization cultures Firm cultures affect strategic thought and plans Failure to combine cultures is a key obstacle to merger integration

Alternative Strategy Methodologies Dr. Songporn Hansanti Environment of Business Alternative Strategy Methodologies SWOT or WOTS UP – inventory and analysis of organizational strengths, weaknesses, environmental opportunities and threats Top-down or Bottom-up – relate to company forecasts vs. aggregation segment forecasts Computer models – allow detail and complexity Logical incrementalism – well-supported moves from current bases Comparative histories – learn from the experiences of others

Alternative Strategy Methodologies Dr. Songporn Hansanti Environment of Business Alternative Strategy Methodologies Synergy – look for complementarities Adaptive processes – periodic reassessment of environmental opportunities and organization capability adjustments required Environmental scanning – continuous analysis of all relevant environments Intuition – insights of brilliant managers Entrepreneurship – creative leadership

Alternative Analytical Frameworks Dr. Songporn Hansanti Environment of Business Alternative Analytical Frameworks Product life cycle – introduction, growth, maturity, decline stages with changing opportunities, threats Learning curve – costs decline with cumulative volume experience (first mover advantage) Competitive analysis – industry, suppliers, customers, complemetors, etc. Value chain analysis – seek to add product characteristics valued by customers Cost leadership – low-cost advantages

Alternative Analytical Frameworks Dr. Songporn Hansanti Environment of Business Alternative Analytical Frameworks Resource-based view – capabilities are inimitable Relatedness matrix – unfamiliar markets and products involve greatest risk Focus matrix – narrow versus broad product families Growth/share matrix – aim for high market share in high growth markets Attractiveness matrix – aim to be strong in attractive industries Global matrix – aim for competitive strength in attractive countries

Alternative Analytical Frameworks Dr. Songporn Hansanti Environment of Business Alternative Analytical Frameworks Product-market matrix Competitive-position matrix

Alternative Analytical Frameworks Dr. Songporn Hansanti Environment of Business Alternative Analytical Frameworks Growth-share matrix Strength-market attractiveness matrix

Alternative Analytical Frameworks Dr. Songporn Hansanti Environment of Business Alternative Analytical Frameworks Global strategy

Strategy Formulation Approaches Dr. Songporn Hansanti Environment of Business Strategy Formulation Approaches Boston Consulting Group Approach Historical emphasis: experience curve, product life cycle, product portfolio balance Recent approaches Impact of the Internet and other innovations Performance measurements - cash flow return on investment (CFROI) Michael Porter Approach (1980, 1985, 1987) Select attractive industry using “Five Forces” Develop competitive advantage through cost leadership, product differentiation, or focus Develop attractive value chains

Evaluation of Strategic Approaches Dr. Songporn Hansanti Environment of Business Evaluation of Strategic Approaches Steps taken in checklists and iterations: State objectives Define environment Analyze strengths/weaknesses relative to environment Assess potential in environment Compare potential to objectives If gap, search for alternative ways to close gap Select alternatives for analysis Cost/benefit analysis of alternatives Tentative selection — formulate plans and actions

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Requires continuing reassessment Industry analysis Competitor analysis Supplier analysis Customer analysis Substitute products Complementors Technology changes Societal factors Firm's strengths/weaknesses relative to present/future industry conditions

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Goal/capability analysis Are current goals, policies appropriate? Do goals, policies match resources? Does timing of goals/policies reflect ability of firm to change? Work out strategic alternatives May not include current strategy Choose best Mergers represent one set of alternatives

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Grove (1996) Firm must adjust to six forces Existing competitors Potential competitors Complementors Customers Suppliers Industry transformation Eclectic adaptive processes approach to strategy

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Business goals - general or specific, but must be quantifiable to facilitate progress assessment Size objectives Large enough to use fixed factors effectively Critical mass necessary to attain cost levels for profitable operation at market prices Growth objectives - sales, assets, EPS, values To get favorable P/E multiple for shares To increase market to book value of shares

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Business goals Stability objectives - two kinds of instability Large erratic fluctuations in total size and abrupt program shifts (e.g., defense industry) Cyclical instability of durable goods industries Flexibility objectives - ability to operate in variety of product markets and responsive to consumers Breadth of capabilities, e.g., research, manufacturing, marketing Technological breadth Stay close to customers

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Aligning firm to changing environments Gap between objectives and potential based on current capabilities Various approaches: Choose products related to needs of customer that provide large markets Focus on technological bottlenecks Be at frontier of technology and aim for attractive product fallout Emphasize economic criteria – ex. value

Formulating a Merger Strategy Dr. Songporn Hansanti Environment of Business Formulating a Merger Strategy Strategic planning and mergers Diversification strategy may be necessary if firm must alter product-market mix or capabilities to reduce or close strategic gap Both involve evaluation of current capabilities relative to those needed to reach objectives Related diversification involves lower risks

Strategy and Structure Dr. Songporn Hansanti Environment of Business Strategy and Structure Unitary or U-Form Highly centralized under the president Broken into functional departments - no departments can stand alone No easy way to measure each department as a profit center Allows rapid decision-making Only successful in small organizations Difficult to handle multiple products

Strategy and Structure Dr. Songporn Hansanti Environment of Business Strategy and Structure Holding company or H-Form Arranged around various unrelated operating businesses Leadership can evaluate each unit individually Resources can be allocated according to projected returns

Strategy and Structure Dr. Songporn Hansanti Environment of Business Strategy and Structure Multidivisional organization (M-form) Each division is autonomous enough to be judged a profit center Divisions share some general staff assistance Can handle related product and geographic market extensions

Strategy and Structure Dr. Songporn Hansanti Environment of Business Strategy and Structure President Matrix form Managers of functional departments such as finance, manufacturing and development Employees are assigned to subunits organized around products, geography, or other criteria Effective in firms characterized by many new products or projects Product A Product B Product C Research Manager Production Manager Marketing Marketing Manager

Structure and Acquisition Strategy Dr. Songporn Hansanti Environment of Business Structure and Acquisition Strategy Structure Strategy U-Form Target likely fully consolidated Usually closely related activities H-Form Easier to acquire unrelated firms Operations may remain somewhat independent M-Form Target may become separate division served by existing functional groups Matrix Best for geographic expansion of related products

Valuation and Merger Analysis Dr. Songporn Hansanti Environment of Business Valuation and Merger Analysis Valuation approaches and tests Comparable companies or transactions Test whether transaction makes sense Test whether premium paid is justified by potential synergies Additional analysis Nature of industry Value drivers (historical and projected) Competitive and antitrust effects of merger Issues related to implementing the merger

Trends of Strategic Alliances in US Dr. Songporn Hansanti Environment of Business Trends of Strategic Alliances in US ExxonMobil = Exxon + Mobil Oil Hewlett-Packard ; with Compaq Procter & Gamble buy Gillette Adidas-Salomon acquire Reebok Siemens; with Nokia The Walt Disney Company acquiring Pixar Google buys Youtube Warner Bros. Entertainment & CBS Corporation = The CW Television Network

EU DaimlerChrysler = Daimler Benz + Chrysler BP with Amoco Dr. Songporn Hansanti Environment of Business EU DaimlerChrysler = Daimler Benz + Chrysler BP with Amoco Alcatel + Lucent Technologies = Alcatel-Lucent Air France + KLM Royal Dutch Airlines = Air France-KLM Lufthansa and SWISS

Japan Mitsubishi UFJ Financial Group Konica Minolta = Konica + Minolta Dr. Songporn Hansanti Environment of Business Japan Mitsubishi UFJ Financial Group Konica Minolta = Konica + Minolta SoftBank acquiring Vodafone Japan Sumitomo Mitsui Banking Corporation = Sumitomo Bank + Sakura Bank

Thailand EGV + Major = EGV-Major Cineplex Bilsstel + TG Fone Dr. Songporn Hansanti Environment of Business Thailand EGV + Major = EGV-Major Cineplex Bilsstel + TG Fone LoxInfo + CS = CSLoxInfo GMM + True TMB + IFCT + DTDB