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.