Foundations of Corporate Success: How Business Strategies Add Value

By John A. Kay | Go to book overview

CHAPTER 10

Mergers

Merger and acquisition is the most common means of entry into new markets, and plays a central role in all discussion and formulation of corporate strategy. In this chapter I argue that this role is frequently overstated. Mergers can, and do, add value. They achieve this when they enable distinctive capabilities to be exploited more widely, or more effectively, and I describe how this can be achieved. Yet a review of studies of merger performance suggests that the effect on performance is more often negative than beneficial. Frequently this is because this corporate activity is not based on a clear view of the firm's distinctive capability and an identification of the markets in which that capability is most effectively applied but is the result of financial objectives--the pursuit of a balanced or diversified business portfolio--or simply the thrill of the chase.

In recent years, joint ventures, strategic alliances, divestment, and management buyouts have given companies many more tools for restructuring their activities. I explain some of the reasons why alliances, like mergers, so often fall short of the hopes of their promoters, but the evidence so far encourages a more hopeful assessment of buyouts and divestments. In 1990, the European Community adopted a merger control regulation, and some individual countries also have merger policies. I describe these developments in the last part of this chapter.

Chapter 9 presented a careful, analytical approach to matching the activities and market position of the firm to its distinctive capabilities. Decisions are sometimes made that way, and perhaps should more often be made that way. But the most common means of entering new markets, or leaving old ones, is through acquisition and divestiture. Within the European Community merger is a rapidly growing phenomenon. An acquisition may be a means of entering a new market, but it has many wider effects. It also brings with it new production facilities, perhaps new distinctive capabilities, perhaps new strategic assets. And an acquisition is a package. You buy, or you decline to buy, what is on offer.

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Foundations of Corporate Success: How Business Strategies Add Value
Table of contents

Table of contents

  • Title Page i
  • Foreword iii
  • Preface vi
  • Contents xi
  • List of Figures xiii
  • List of Tables xiv
  • List of Tables xv
  • I - Corporate Success 1
  • Chapter 1 - The Structure of Strategy 3
  • Chapter 2 - Adding Value 19
  • II - Business Relationships 31
  • Chapter 3 - Co-Operation and Co-Ordination 33
  • Chapter 4 - Relationships and Contracts 50
  • III - Distinctive Capabilities 63
  • Chapter 5 - Architecture 66
  • Chapter 6 - Reputation 87
  • Chapter 7 - Innovation 101
  • Chapter 8 - Strategic Assets 113
  • IV - From Distinctive Capabilities to Competitive Advantage 125
  • Chapter 9 - Markets 127
  • Chapter 10 - Mergers 144
  • Chapter 11 - Sustainability 160
  • Chapter 12 - Appropriability 181
  • Chapter 13 - The Value of Competitive Advantage 192
  • Added Value Statements 211
  • V - Competitive Strategies 219
  • Chapter 14 - Pricing and Positioning, 1 221
  • Chapter 15 - Pricing and Positioning, 2 235
  • Chapter 16 - Advertising and Branding 251
  • Chapter 17 - Vertical Relationships 267
  • VI - The Strategic Audit 283
  • Chapter 18 - The Industry 285
  • Chapter 19 - The Firm 302
  • Chapter 20 - The Nation 320
  • VII - The Future of Strategy 335
  • Chapter 21 - A Brief History of Business Strategy 337
  • Chapter 22 - Conclusion 364
  • Value of the Ecu 369
  • Glossary 371
  • Bibliography 377
  • Index of Companies 395
  • General Index 399
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