Comparison Between Different External Strategic Growth Methods

Topics: Mergers and acquisitions Pages: 9 (2643 words) Published: June 3, 2011

During the late 1990s, the world experienced the fifth great merger movement, which lasted for over 5 years and involved almost all industries, even all countries (Brealey, Myers & Allen, 2008). And the number of enterprise alliances increased at the same time. It can be seen that these two strategic growth methods has become the main choices for global companies. Both of them are capable to help companies achieve some strategic objectives, such as economies of scale, market share growth and obtaining strategic resources. However, when implementing these two methods, companies are required to distinguish their different characteristics and emphases. Moreover, compared with other growth methods, they contain their own features and merits, which make them highly competitive. But in the real world, when companies are making decides about external expansion strategy, they may be confused about their choices. Which strategy will be the right answer - faster and more direct one or more flexible one, which is intimately connected with their future? To a company, if merger and acquisition is proved to be wrong, the enterprise has to suffer from slowing their pace to get access to resources; otherwise, this business will be more risky (Bleeke & Ernst, 1995). Therefore, it is crucial for companies to pay attention to subtle differences between merger and acquisition and strategic alliance when undergoing a strategic decision-making.

In this essay, I would like to start from basic definitions and some characteristics of mergers and acquisitions and strategic alliances to distinguish them, and then, illustrate their own problems. In addition, their relationship with the stage of business growth will be briefly explained.

1. M & A and strategic alliance

1.1 The concept of M&A and strategic alliance
Johnson, Scholes and Whittington (2009) says that “An acquisition is where an organization takes ownership of another organization, whereas a merger implies a mutually agreed decision for joint ownership between organizations.” In fact, acquisition is one method of mergers, even a common way when doing the merger of listed companies in the stock market. Therefore, corporate mergers and acquisitions are often collectively referred merger and acquisition (M & A).

In Hagedoorn and Duysters’s (2002) opinion, “strategic technology alliances are those modes of inter-firm cooperation for which a combined innovative activity or an exchange of technology is at least part of an agreement.” These alliances are expected to have an impact on the long-term product-market combinations of the companies involved (Hagedoorn & Duysters, 2002).

Yashino and Rangan (1995) give a more detailed definition about strategic alliance, and put forward three conditions for forming business alliances: two or more companies jointly committed to a series of objectives, but maintain independence; collective firms share revenue and control the performance of a particular business; cooperative enterprises contribute to one or more key areas continuously, such as technology, products, etc.

1.2 Distinction and connection between strategic alliances and M&A The concept of strategic alliance, with Porter and Fuller's words (1986), is that the relationship between enterprises is more than the normal market but not yet reaches the organization merger, which seems to have drawn a line with M & A. Generally, the main difference between Strategic Alliances and M & A can focus on the following points:

Transfer of control. Strategic alliances emphasize the cooperation. Alliance members are relatively independent and equal to each other. Although with exchange of equity, but the control of companies does not transfer at the same time, which can be considered as a "win-win" strategy. But merger and acquisition is characterized by the paid transfer of property, and the control is transferred.

In 1998, a merger between the Daimler-Benz and the Chrysler...
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