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When one company takes over another and clearly established itself as the new owner,

the purchase is called an acquisition.

An acquisition involves one firm taking over


the ownership (equity) of another, hence the
alternative term takeover

Less risky than internal new ventures


Easy way to enter an industry that is protected by high barriers to entry

Advantage of acquisition is:

Speed: It provides ability to speedily acquire resources and competencies not held in
house. It allows entry into new products and new markets. Risks and costs of new
product development decrease.

Market power: It builds market presence. Market share increases. Competition decrease.
Excessive competition can be avoided by shut down of capacity.
Diversification is aggrieved. Synergistic benefits are gained.

Overcome entry barrier: It overcomes market entry barrier


by acquiring an existing organization. The risk of competitive reaction decrease.

Financial gain: Organization with low share value or low price earning ratio can
be acquired to take short term gains through assets stripping.

Stakeholder expectations: Stakeholder may expect growth through acquisitions.

Disadvantage of acquisition are:

Integration problems: The activities of new and old organizations may be difficult
to integrate. Cultural fit can be problematic.
High cost: The acquirer may pay high cost, especially in cases of hostile takeover bids.
Value may not be added for the acquirer.

Financial consequences: The returns from acquisitions may not be attractive.


Executed cost saving may not materialize.

Too much focus: Too much managerial focus on acquisitions can be detrimental to
internal development.

Joint venture:
a joint venture is a common business strategy used among companies seeking to achieve a
common goal or reach a specific consumer market. Entering into a joint venture involves two or
more businesses coming together under a contractual agreement to work together on a specific
project for a certain period of time. When a joint venture is successful, participating companies
share in the profit as agreed upon in the initial contract.
The most common form of equity alliance is
the joint venture, where two organizations
remain independent but set up a new
organization jointly owned by the parents

What are the Advantages of forming a Joint Venture?

Provide companies with the opportunity to gain new capacity and expertise

Allow companies to enter related businesses or new geographic markets or


gain new technological knowledge

access to greater resources, including specialised staff and technology

sharing of risks with a venture partner


Joint ventures can be flexible. For example, a joint venture can have a
limited life span and only cover part of what you do, thus limiting both your
commitment and the business' exposure.

In the era of divestiture and consolidation, JVs offer a creative way for
companies to exit from non-core businesses.

Companies can gradually separate a business from the rest of the


organisation, and eventually, sell it to the other parent company. Roughly 80%
of all joint ventures end in a sale by one partner to the other.

The Disadvantages of Joint Ventures


It takes time and effort to build the right relationship and partnering with another
business can be challenging. Problems are likely to arise if:

The objectives of the venture are not 100 per cent clear and communicated
to everyone involved.

There is an imbalance in levels of expertise, investment or assets brought


into the venture by the different partners.

Different cultures and management styles result in poor integration and co-
operation.

The partners don't provide enough leadership and support in the early
stages.

Success in a joint venture depends on thorough research and analysis of the


objectives.

Internal new venturing:


is the process of transferring resources to and creating a new business unit or division in a new
industry. Internal venturing is used most of the companies whose business
model is based on using their technology to innovate new kinds of products and
enter related markets or industries. Thus, technology-based companies that pursue
related diversif cation, like DuPont, which has created new markets with products
such as cellophane, nylon, Freon, and Te on, are most likely to use internal new
venturing.

A company may also use internal venturing to enter a newly emerging or


embryonic industryone in which no company has yet developed the competencies or business
model that gives it a dominant position in that industry. This was
Monsantos situation in 1979 when it considers to entering the biotechnology field
to produce herbicides and pest-resistant crop seeds. The biotechnology field was
young at that time, and there were no incumbent companies focused on applying
biotechnology to agricultural products. Accordingly, Monsanto internally ventured
a new division to develop the required competencies necessary to enter and establish
a strong competitive position in this newly emerging industry.

Transferring resources and creating a new business unit in a new industry to innovate
new kinds of products

Used by companies that are:

Technology-based and pursue related diversification

Venturing to enter a newly emerging industry

Pitfalls/drawbacks

Market entry on too small a scale

Poor commercialization of the new-venture product

Poor corporate management of new-venture division