Session 7: Corporate Strategy (Strategic Alliances, Mergers and Acquisitions)

Question 1

What are the three ways firms can achieve growth according to the Build-Borrow-Buy framework?

Answer 1

• Build (internal development)
• Borrow (strategic alliances/contract)
• Buy (acquisition of resources/capabilities).

Question 2

What four questions guide the Build-Borrow-Buy framework?

Answer 2

Relevancy – Are internal resources relevant? (No, move to T; if yes, build)

Tradability – Are external resources tradable via contracts? (No, move to C; if yes, borrow)

Closeness – How close do you need to be to your resource partner? (No, borrow; if yes, move to I)

Integration – Can you successfully integrate the target firm? (No, revisit strategy; if yes, buy)

Question 3

What is a strategic alliance?

Answer 3

A voluntary arrangement between firms to share knowledge, resources, and capabilities to develop products, services, or processes.

Question 4

Why do firms enter strategic alliances?

Answer 4

• To strengthen competitive position
• Enter new markets
• Hedge against uncertainty
• Access critical complementary assets
• Learn new capabilities.

Question 5

What are the three main types of alliance governance mechanisms?

Answer 5

• Non-equity alliances (contracts)
• Equity alliances (partial ownership)
• Joint ventures (new standalone entity jointly owned)

Question 6

What is the difference between a merger and an acquisition?

Answer 6

Merger: Joining of two independent companies to form a combined entity (usually friendly).

Acquisition: Purchase or takeover of one company by another (can be friendly or hostile).

Question 7

What is horizontal integration?

Answer 7

Merging with or acquiring a competitor at the same stage of the value chain.

Question 8

What are three main benefits of horizontal integration?

Answer 8

• Reduces competitive intensity
• Lowers costs (leveraging economies of scale, don’t need to outsource)
• Increases differentiation

Question 9

Why do firms acquire other firms?

Answer 9

To access new markets and distribution channels

To overcome entry barriers

To access new capabilities or competencies

To preempt rivals — strategic preemption: reduce competitive intensity for yourself through acquisition (e.g. acquiring a startup that could potentially become serious competition, in its early stages to protect yourself)

Question 10

Why did LVMH acquire Tiffany?

Answer 10

For product diversification (jewelry & watch markets), geographic diversification (U.S. market), and to strengthen market share in affordable luxury.