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SMMCGX[LN-9 & LN-12] Corporate Strategies: Vertical Integration,…

- - - - Stage One
      - Pursue cooperative
        interfirm relationships
        
        Contract or equity
        
        Stage Two
        
        Contract
        
        Turkey Project
        
        Srategic Supplier/distributor
        
        R&D Contracts
        
        Licensing / Franchising
        
        Co-marketing
        
        Equity
        
        Specifying the relationship
        
        Stage Three
        
        Cross-shareholding
        
        Joint Venture
        
        Strategic Investment
      - Mergers and Acquisitions
      - Market transactions
        
        Decision Model of Strategic Alliance and Network Formation
    - - Resource
        
        Integrate the resources of both parties
        
        May lead to leakage of proprietary technology
        
        Disadvantages
        
        Design clear technology protection agreements
        
        Improvement
        
        Introduce digital tools and hybrid work model
        
        Promote regular evaluation and cross-delegation
        
        1 more item...
        
        Share the costs of R&D, marketing, production.
        
        High communication costs, coordination difficulties
        
        Cost
        
        Facilitate knowledge exchange in organization
        
        Free-rider mentality, unbalanced contribution
        
        Innovation
        
        More flexible than mergers & acquisitions
        
        Lack of complete governance control power
        
        Decision
        
        Advantages
    - - Strong ties
        
        Long-term and in-depth interaction
        
        Suitable for cooperation
        that aligns with the strategy.
      - Weak ties
        
        Wide exposure and fast information flow
        
        Suitable for exploring
        new knowledge.
      - The alliance relationship will evolve from strong ties to weak ties.
  - - - Acquisitions
        
        Approach
        
        Friendly
        
        Hostile
        
        Common Approach
        
        Tender offer
        
        Ownership
        Level
        
        Majority of stock
        
        100% of target firm's stock
        
        Controlling share
      - Mergers
        
        Management
        Control
        
        One parent usually becomes dominant
        
        Leads the post-merger organization
        
        Stock
        Action
        
        Parent stocks retired
        
        New stock issued
        
        Company
        Name
        
        May use one parent’s name
        
        May combine both names
      - Why
        
        Synergy Development
        
        Share activities
        
        Build market power
        
        Leverage core competencies
        
        Industry Consolidation
        
        M&A can trigger consolidation trends
        
        Forces competitors to merge
        
        Resource Acquisition
        
        Gain valuable resources
        
        Expand product offerings and services
        
        Speed to Market
        
        Critical in high-tech & knowledge-intensive industries
        
        Acquiring is faster than building internally
        
        Market Expansion
        
        Enter new market segments through acquisition
      - Empirical Evidence
        
        Acquiring Firms
        
        No value created (on average)
        
        M&A Type
        
        Related M&A creates more value
        
        Conclusion
        
        1 more item...
        
        Unrelated M&A creates less value
        
        Target Firms
        
        Value increases by ~25%
  - - - critical stage
        
        Ability to value new knowledge
        
        Ability to acquire/assimilate new knowledge
        
        Ability to transfer/exploit new knowledge
      - Background of strategic alliance
        
        importance
        
        Learn from your own shortcomings through building corporate relationship developmentLearn from your own shortcomings through building corporate relationship development
        
        When companies learn too much from each other
        
        spark a
        competition
        in ability
    - - Target
        
        Focus on management
        
        focus on the company's core business
        
        Selling non-core or
        underperforming businesses
        
        Selling business
        
        Providing companies with more resources
        
        Invest in projects with
        better growth potential
        
        Raising cash
        
        to help finance existing operations
        
        Reduce financial losses
        
        Did not achieve the expected results
        
        Divestiture of this business
        Helping companies stop losses
        
        from failed acquisitions
        
        Successful
        Divestiture
        
        Storytelling
        
        Seize the opportunity
        
        reason
        
        know value
        
        1 more item...
  - - - 1. Partner Selection
        
        Clarify Strategic Motivation and Alliance Value Proposition
        
        Establish Partner Selection Criteria
        
        Search and Screen Potential Partners
        
        Conduct Due Diligence and Evaluation
        
        Select and Finalize the Partner, Sign Agreements
      - 2. Alliance Structure to eliminate opportunism
        
        Limit technology outflow
        
        Establishing contractual safeguard
        
        Technology exchange (cross-licensing)
        
        Building trust and commitment
      - 3. Managing the Alliance
        
        Relationship Governance-trust, commitment etc.
        
        Conflict Management
        
        Response Strategies
        
        Partner Learning
      - Alliance
        Life
        Cycle
        
        Phase 1. Alliance-Specific Strategy
        Phase 2. Analysis and Selection
        Phase 3. Building Trust and Value-Creating Negotiations
        Phase 4. Operational Planning
        Phase 5. Alliance - Structuring and Governance
        Phase 6. Launching and Managing
        Phase 7. Transform, Innovate, or Exit Gracefully
      - Strategic
        Alliance
        
        The Variety of
        Strategic Alliances
        
        What's
        Strategic
        Alliance?
        
        These partnerships, also known as strategic alliances, typically involve joint efforts in product development, creation, marketing and sales.
        
        Strategic alliances can take various forms such as joint ventures, equity strategic alliances or non-equity strategic alliances.
        
        An alliance refers to a collaborative relationship formed between two companies to pursue mutually beneficial objectives.
        
        short - term
        market transactions
        
        co-marketing
        
        R&D contract
        
        Turnkey project
        
        1 more item...
        
        contractual (non-equity-based) alliances
        
        Why Strategic Alliance
        
        market access
        
        reducing cost
        
        competence access
        
        increasing value
        
        learning integration
        
        Motives
        
        domestic
        
        Raising Market share
        
        Pooling resources (e.g.R&D)
        
        Achieve Economies of scale
        
        Gain access to complementary resources
        (pool resources human, upstream and downstream, capital, etc.)
        
        international
        
        Gain access to new markets
        
        Avoiding import barriers
        (avoid import barriers, tariffs, and other import levies)
        
        International synergies
        
        Develop core competencies(protect know-how)
- - - - Integration direction
        
        :arrow_double_up: Upstream is
        backward integration
        
        :arrow_double_down: Downstream is
        forward integration
        
        Taper
        Integration
        
        "In-house production" (e.g. making some components in-house)
        
        "Market outsourcing" (such as purchasing from suppliers)
        
        The company is partially vertically integrated, for example producing some inputs in-house while sourcing them from the external market.
        
        Benefit
        
        Flexibility: Maintaining opportunities for market competition and innovation.
        
        Cost efficiency: Reduces the administrative burden of full integration.
      - Why Vertically Integrate?
        
        Benefit
        
        Superior Coordination
        
        Avoid transaction costs
        
        Cost
        
        Lack of market efficiency
        
        increased risk
        
        Reduced elasticity
    - - The way in which a company develops relationships with other actors along the value chain
      - Degree of Commitment: Low to High
        
        Vertical relationships/governance forms
        (low to high commitment/formalization)
        
        Spot sales, purchases
        
        Long-term contracts
        
        Informal supplier, customer relationships
        
        Supplier, customer partnerships
        
        1 more item...
        
        Joint ventures
        
        Franchising
      - Formalization: Low to High
    - - Governance Choice
        
        Market Mechanism
        
        Transaction Cost
        
        Search costs, negotiation costs, contract costs, monitoring costs, execution costs
        
        Market mechanism
        
        Coordination of specialized economic activities through market prices and market contracts is efficient
        
        Hierarchy/Administrative mechanism
        
        Coordinated through employment
        contracts under centralized
        management authority (the visible hand)
        
        Administrative Cost
        
        efficiency
        
        Technology (e.g. transport, ICT) and management (e.g. accounting systems, financial markets)
        
        Disadvantages
        
        : May affect flexibility and speed of response.
        
        Governance Choice Decision
        
        Represents the different governance mechanisms that can be used under the "make or buy" decision
        
        Arm’s length Contracts
        
        Equity based Collaboration Strategic Alliance
        
        Long-term Agreements on Supply or Distribution
        
        1 more item...
        
        Licensing or Franchising Turnkey Project
        
        Joint Venture, JV
        
        1 more item...
  - - - Market mechanism:
        Use of market contracts guided by market price (invisible hand)
        
        TCE - Transaction Cost Econ
        = Make or Buy Decision
        = Market or Hierarchy?
        
        Total Cost Minimization
        
        Transaction Costs of Market:
        Firms exist to reduce or eliminate transaction costs that arise when using the market.
        (Ronald Coase (1937) - The Nature of the Firm)
        
        Trasaction Cost
        Cost of negotiating, writing, enforcing contracts.
        
        Cause of TC
        
        2 more items...
        
        Monitoring Cost
        
        Negotiating Cost
        
        1 more item...
        
        Enforcement cost
        
        Contracting Cost
        
        e.g. residential remodeling
        
        Administrative or Bureaucracy (agency & influence) Cost
        
        Determinants of TCE
        
        Uncertainty
        
        Technology, Market
        
        Frequency
        
        Opportunism, Information Asymmetry
        
        Asset Specificity
        
        Source
        
        Bounded Rationality
        
        Asymmetric Information
        
        Contract Law
        
        Opportunism
        
        self-interest seeking with guile
      - Administrative mechanism:
        Use of employment contracts with a central authority (visible hand)
        
        Administrative Costs:
        
        Influenced by
        
        Considerations
        
        Flexibility & speed of response
        
        Technology (Transportation, ICT)
        
        Management
        (accounting systems, financial markets)
        
        Cost of Vertical Integration
        
        Reduced Market Efficiency
        (low incentives, risk, less flexibility)
        
        Strategic/Scale Misalignment
        (e.g., FedEx, Disney)
        
        Outsourcing/
        De-integration
        as alternative
        
        Benefit of Vertical Integration
        
        Technological Economies
        (cost & process efficiency)
        
        Superior Coordination
        (less mismatch & delay)
        
        Extending Market Power (e.g., Disney-ABC, foreclosure)
        
        Avoid Transaction Costs
        (opportunism,
        incomplete contracts)
  - - - Mission
        
        Objectives
        
        External &
        Internal
        Analysis
        
        Strategic
        Choice
        
        Strategy
        Implementation
        
        Competitive
        Advantages
    - - 1. VPC Framework
        Gain advantage
        
        whether the new business share
        parts of the existing value chain
        
        Create synergy, reduce cost, improve success
        
        Grow efficiently& with connection
      - 2. 3 directions
        to expand
        
        i. Vertical integration
        
        ii. Product diversification
        
        iii. Geographical expansion
        
        Wholly Owned Subsidiary (WOS)
        
        tsmc's fab in Japan and US
        
        Joint Venture
        
        Starbuck& Nestlé
        
        Strategic Alliances
        
        Line& iPass Card
        
        Mergers& Acquisitions (M&A)
        
        Foxconn& Sharp
      - 3. Case of GE
        
        Product Scope
        
        Aviation, Healthcare, Finance :arrow_left: Electricity
        
        Geographic Scope
        
        Global :arrow_left: U.S.
        
        Result
        
        Multi-business global firm :arrow_left: Single-business
- - - - 35%
        
        30%
        
        70%
        
        20%
        
        楊書維 Ryan
        
        Mergers & Acquisitions (M&A)
        
        姜碩桓 Barry
        
        Absorptive Capacity & Divestment
        
        許詠翔 Mandel
        
        Strategic Alliance and Network
        
        陳宜苓 Zoe
        
        The Introduction of Strategic Alliance
      - 陳渝鈴 Jenny
      - Administrative & Market Mechanism