The Business Environment
The business environment is highly dynamic and usually poses numerous challenges to companies. Increase in levels of competition, high operational costs, reduced rate of growth and development, scramble for economic resources like labor, and need to increase market share are some of the major challenges that most companies face today. In most industries, large companies often do better than small companies when faced with such challenges. As a result, some small and medium-sized companies usually opt to come together to form a single, large company through a process called merging or choose to sell their stocks to already existing and well-established companies through the process of acquisition.
Mergers and Acquisitions
A merger refers to the process by which two or more separate business entities come together and combine their assets and liabilities to form a single business entity. In most cases, the businesses often retain their original identities after a merger, for example, the merger between Glaxo Wellcome and SmithKline Beecham resulted into the formation of a new company called GlaxoSmithKline which borrowed its identity from the first names of the parent companies. According to Cole, companies that merger often pool together their resources in order to ensure that the new company becomes more competitive and efficient. Sherman (2008) also asserts that the stocks for the parent companies are usually surrendered after a merger and new stocks for the created company are introduced into the exchange market. Mergers usually involve companies of about the same size.
On the other hand, acquisition is the process by which one company takes over or purchases another company and establishes itself as the new owner of the purchased company. A company that has been acquired or purchased by another company usually ceases to exist. Moreover, acquisition also results into change in asset ownership and liabilities as well as the management of the purchased company. An example of successful business acquisition was the takeover of Wythe by Pfizer Nutrition in October 2009.
According to Cole (2009), businesses often merge or acquire other entities in order to increase shareholder value. Moreover, Cooke (2010) also asserts that large businesses may acquire or purchase small and medium-sized businesses in order to gain greater market share or to increase productivity through boosted efficiency. In highly competitive business environments, large and well-established companies may also buy weak or infant companies in order to reduce competition or create a monopoly. However, such an act is considered business malpractice, and thus illegal.
A Corporation that has Merged with another Company
The coming together of Daimler-Benz AG and Chrysler in 1998 to form a single company called DaimlerChrysler is another good example of a merger between two businesses. Both Daimler-Benz and Chrysler were automotive companies that specialized in manufacturing automobiles, especially cars. After the merger, the parent companies ceased to exist and formed a new automotive company called DaimlerChrysler.
The main goal of the merger between Daimler-Benz and Chrysler was to increase the visibility of the two companies in the automobiles industry. The merger was intended to enable the companies to easily exploit the market and attain competitive advantage over competing companies such as BMW, Fiat, Toyota and Mercedes Benz. However, Vlasic and Stertz (2011) assert that the merger agreement allowed Daimler-Benz to continue with its non-automotive businesses independently. This led to continued growth and development of Daimler-Benz whereas Chrysler was struggling to remain competitive in the market. As a result of the merger, investors in the two companies filed numerous lawsuits to challenge the coming together of the two companies to form DaimlerChrysler. According to Vlasic and Stertz (2011), most investors believed that the deal was a planned takeover of Chrysler by Daimler-Benz and not a merger of the equals as claimed by the directors of Daimler-Benz. This further resulted into a more troubled relationship in the new company. In addition, the merger also failed to deliver the anticipated synergy and corporate integration.
By mid-2002, Daimler-Benz was still running two independent product lines despite the merger with Chrysler. On the other hand, Chrysler continued to report huge losses throughout the years. For example, Vlasic and Stertz (2011) reported that Daimler was unwilling and not disposed to allow Chrysler to manufacture quality products by denying Chrysler access to quality materials that it could use during the production processes. This also led to massive decline in sales of Chrysler’s products. After several years of unending wrangles and battles between the new company and the investors, the merger between Daimler-Benz and Chrysler was disbanded and brought to an end. In May 2007, Chrysler was sold off to another company called Cerberus Capital Management. After the sale of Chrysler, DaimlerChrysler reversed its name to Daimler AG. The company also retained a twenty-percent stake in Chrysler while eighty percent of Chrysler was owned by Cerberus Capital Management.
In my opinion, the merger between Daimler-Benz and Chrysler was ill-planned and conducted in bad faith by Daimler-Benz AG. It was not the best option for Chrysler. The main intention of Daimler-Benz was to take over Chrysler in pretence of a merger. This is justified and substantiated by the business malpractices conducted by Daimler such as running independent product lines that compete with products of the newly created company. In addition, the reluctance of Daimler to allow Chrysler to use quality materials during its manufacturing processes also indicates that Daimler had little or no interest in the growth and development of Chrysler.
A Corporation that has never been involved in any Merger or Acquisition
An example of a company that has never been involved in any merger or acquisition is the Fisker Automotive Inc. Fisker Automotive is company that manufactures automobiles and it is based in Anahem, California. The company was founded in August 2007 by Henrik Fisker and Bernhard Koehler. Automobiles from Fisker Automotive are branded as Fisker Karma. The first brand of Fisker Karma was manufactured in late 2009 and released into the United States market in October 2011. Unfortunately, the company has stopped production temporarily due to financial constraints.
In my opinion, Fisker Automotive should merge with major automakers such as Bavarian Motor Works (BWM) in order to be able to continue with manufacturing operations efficiently. For my part, Bavarian Motor Works would be the most profitable target company for Fisker Automotive to merge with because of its huge market share and strong establishment. Through a merger with Bavarian Motor Works, Fisker Automotive Inc. would be able to enjoy existing and loyal customers as well as strong financial and human capital support and expertise from BMW Company. On the other, BWM would benefit from high creativity and innovativeness of Fisker Automotive such as the production of environmentally friendly vehicles. According to Rae (2010) and Abernathy (2009), Fisker Automotive was the first automaker to produce a low-cost electric vehicle. Thus, a merger between the two companies would result into mutual benefits amongst them. In addition, I would assert that the merger would also benefit Fisker Automotive because the company would be able to borrow production technologies and quality materials from BMW which is more established.
International Business-Level and Corporate-Level Strategies for a Corporation that Operates Internationally
Companies usually use three major types of strategies namely corporate-level, business-level and functional-level strategies to gain competitive advantage over their competitors. Business-level strategies refer to a set of actions taken by a business entity to provide goods and services that offer value to the customers. According to Aaker (2011) and Mathur and Kenyon (2008), businesses also use business-level strategies to gain competitive advantage over their competitors by exploiting various core competencies in the industry and consumer markets. Business-level strategies include cost leadership, differentiation and customer focus.
An example of a company that operates internationally and has effectively utilized cost leadership and differentiation as business-level strategies is Nokia Corporation. Nokia Corporation is a multinational telecommunications company that specializes in manufacturing, distribution and sale of mobile telephony products. In the recent past, Nokia Corporation has focused on manufacturing highly differentiated smartphones with unique features and high performance capabilities. The distinct features and attributes enable customers to easily distinguish Nokia’s products from those of competitors like Apple Inc., Motorola and Samsung. In addition, the smartphones are also relatively cheap and affordable as compared to other smartphones from competing companies like the iPhone which is manufactured by Apple Inc. According to Haikio, Nokia Corporation has managed to adequately focus on the upper-class consumers who are believed to be the largest consumers of smartphones. Moreover, Nokia Corporation has responded to the changing needs of users of smartphones by manufacturing handsets that operate Windows Mobile instead of the old Symbium Operating System (OS). This is because most consumers suppose that Windows Mobile performs better than Symbium OS.
I would recommend that Nokia Corporation should also focus on middle-class consumers for its smartphones because recent research studies on consumer trends indicate that middle-class people form a highly potential market for smartphones. However, the market has not been fully exploited, thus Nokia should target it as well. Similarly, Nokia Corporation should increase its market geographic scope by targeting specific markets such as Africa and South Asia that have not be fully exploited.
On the other hand, corporate-level strategies refer to a set of actions and commitments taken by an organization in relation to acquisition and allocation of organizational resources and management of various business units within the company. Kay (2009) defines corporate-level strategy as the overall strategy for a multinational and expansive company that deals with effective management, integration and coordination of business units within the company to ensure attainment of organizational goals and objectives. In relation to Nokia Corporation, the company has ensured that quality materials are procured and adequately utilized during production processes so that high quality products are manufactured. Moreover, Nokia’s corporate-level strategy in relation to labor is to source highly qualified workers from all corners of the world and deploy appropriate personnel that would help the company in manufacturing highly innovative and creative products. Haikio (2007) also affirms that Nokia Corporation usually recruits workers from diverse social and academic backgrounds in order to tap the best talents into the company.
In my view, I would recommend that Nokia Corporation should improve its corporate-level strategy on labor usage by redeploying resources to various business units in the global markets in order to ensure that the competitive of the company, its goals and objectives, organizational values and culture are spread across all business units. This would help in increasing the overall performance of the company in the global markets. Moreover, the company should also ensure that it effectively utilizes its economic resources such as raw materials and human capital so that the overall productivity and profitability of the company can be increased. The company should also ensure that it sources materials for production from the cheapest suppliers in order to reduce operational costs. This would also help the company in achieving its cost leadership strategies.
Proposed Business-Level and Corporate-Level Strategies for a Corporation that does not Operate Internationally
An example of a company that does not operate internationally is Coda Automotive Inc. The Company is located in Los Angeles, California, and specializes in designing and semi-manufacturing of electric vehicles and automotive batteries. In my view, the business-level strategy that Coda Automotive Inc. should adopt is integrated cost leadership and focus. Through this strategy, the company would be able to fully manufacture electric vehicles at low costs, thus increase its profitability and being able to grow and expand. Focus strategy would also help the company to target specific markets such as the American and African markets and serve them successfully. Consequently, the company would become more profitable and be able to roll out its products into global markets after attaining considerable share in the target markets.
On the other hand, a corporate-level strategy that can be adopted by Coda Automotive Inc. is an investment in extensive research and development (R & D). For my part, the company should conduct extensive research and development in order to be able to develop unique and innovative vehicles with high performances that can adequately meet and exceed the expectations of consumers. This is because the automobile industry is highly competitive and dynamic. Thus, only companies that produce highly differentiated products are likely to attain a greater share of the market. Coda Automotive can also instigate corporate partnerships with well-established companies such as BMW with whom it can share ideas, skills, knowledge and expertise, and organizational resources to enable it to manufacture high-quality products. In my view, this would help the company in gaining acceptance in the global consumer markets.
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