MAF 640 (DEC 13)

NAME: 1 . A M I N A H B I N T I M O H D FA I Z O L 2.AZEIRA BINTI AHMAD 3 . N U R H I D AYA H B T. Z A I N U D I N 4 . WA N M O H D N A Z R I B I N W. A . M A J I D ID NO: 2 0 11 8 6 7 7 4 8 2 0 11 6 9 1 8 3 4 2 0 11 4 1 8 7 2 6 2 0 11 2 1 3 3 9 2

Question 2
a) Do you think it is good idea for Z House of Fashion to employ the horizontal acquisition strategy in order to become a market leader in the fashion industry? Support your answer with three (3) reasons.

Horizontal Acquisition
Acquisition of a company competing in the same line of industry. e.g. Disney with Pixar (movie production), Exxon with Mobile (oil production, refining and distribution). Effective strategy when: Organization competes in growing industry. Competitors lack of some capabilities, competencies, skills, or resources that the company already possesses.

The organization has sufficient resources to manage acquisition

Yes, its good idea for Z House of Fashion to employ horizontal acquisition strategy because: Increased differentiation. The combined company can offer more product or service features. Increased market power. The larger company has more power over its suppliers and distributors/customers. Reduced competition. The results of industry consolidation is fewer companies operating in the industry and less intense competition. Access to new markets. New markets and distribution channels can be accessed by integrating with a company that produces the same goods but operates in different region or serves different market segment. Result in higher performance. They have the similar types of characteristics such as strategy, managerial styles and allocator of resources.

b) Explain three (3) attributes of successful acquisitions that Z House of Fashion should be consistent with in order to increase the probability of success of the unrelated diversification strategy.

Acquisition is friendly. Faster and more effective integration and possibly lower premiums. Acquired firm has assets/resources that are complementary to the acquiring firms core business. High probability of synergy and competitive advantage by maintaining strengths. Acquiring firms manages change well and is flexible and adaptable. Faster and more effective integration facilities achievement of synergy.

c)

Explain two (2) potential problems Zurina may encounter that may hinder successful acquisitions.

Reduced flexibility. Large organizations are harder to manage and they are less flexible in introducing innovations to the market. Destroyed value. Acquisition rarely add value to the companies. More often acquisition fail and destroy the value of the companies involved in it because expected synergies never materialized. Legal repercussions. Horizontal acquisition can lead to a monopoly, which is highly discouraged by many governments due to lack of competition. Therefore governments usually have to approve any larger acquisition before they can happen.