Managing Strategies
This essay is aimed at explaining how the BMW and the Volkswagen companies have used the merger and acquisition strategy and also the joint venture and alliance strategy and the success and problems of the strategies and the effect of the new competitors on the organization( Inkpen,&Swamy 2006).
The mergers and acquisition strategy involves buying and selling and also combining of different companies that can help and finance a growing company in a given industry to grow rapidly without creating another business( Inkpen,&Swamy 2006). An acquisition is buying of one company which is the target by another company. An acquisition is said to be hostile or friendly. In a friendly acquisition the companies involved in the acquisition cooperate in negotiations but in hostile acquisition there are no negotiations (Inkpen, &Swamy 2006). There is great difference between acquisition and merger. In acquisition one company buys another and clearly establishes itself as the new owner and the company bought ceases to exist as the buyer takes over the business and the company’s stock and continues to trade.
A merger happens when two companies agree to form a single new business .the two company’s provide their stock and they form a new company stock. There are several reasons why companies use mergers are acquisitions strategy and they depend on the company that is using the mergers and the acquisition strategy. Companies mostly use the mergers and the acquisition strategy to help them in development or to help in growth (Ketchen, &Bergh 2006).
Some small companies which are not doing well and they need to grow enter into mergers or into acquisition with other companies that are performing well so as to help them in development. It helps companies in improving their products by using innovations that are found in other companies. The BMW has decided to use the mergers and acquisition strategy to buy Rover. This is because BMW wants to acquire new turnover as the new business will have increased sales if the mergers and acquisition strategy is planned well and if the reason for buying the business is well known. The BMW Company wants to acquire new customers in the region where the Rover business is dominating. Another reason why the BMW has decided to buy the Rover business is to obtain new facilities from the Rover business so as to boost its production. It also needs to add its products by buying the Rover business.
The BMW Company wants to enter into new market by buying the Rovers business (Sudarsanam 2003). This is because the company will have a great market segment and many customers in the region unlike the Rover business and the BMW business working independently. Other businesses enter into mergers and acquisition with other businesses which are useful so as to buy the technology from these businesses. The Volkswagen has also decided to buy the Suzuki business because it wants to acquire the technology that is being used by the Suzuki business and also to get into new markets. This is because the Volkswagen business wants to enter into the Indian market where the Suzuki Company is a major player. This will increase the number of customers that the Volkswagen Company has and then increase its sales. If the mergers and the acquisition are managed well then the Volkswagen business will be succesful.
For mergers and acquisitions to be successful the company must have a clear aim of why it needs the mergers and the acquisition, the amount of profit to be made or the losses to incur incase the aim is achieved(Sudarsanam 2003).. The company using the mergers and the acquisition strategy should know if the benefits from the merger represent an attractive return on the cost and the chances of the aim not being achieved. The BMW use of mergers and acquisition strategy has been succesful since the company has been able to make a combined product that is the Rover 75 that is more competitive than the BMW mid range model. This is inline with the BMW objective of improving its product line. The BMW business has not been able to replace the old Rover models since they are too old and not competitive (Sudarsanam 2003).
The Rover business has been successful on its own but after joining the BMW the company has not made enough profits like before but the business has incurred huge loses. Thus the business has not had any financial benefit from the merger and acquisition strategy. The Volkswagen mergers and acquisition strategy has been successful. Several problems have been encountered during the use of mergers and acquisition strategy by the two companies (Sudarsanam 2003). These problems include loss of sales, redundancies, cultural problems, conflict between the companies. The BMW business has experienced a lot of problems in using the mergers and acquisition strategy. This is because the company has incurred loses in sales and this has affected the Rover company since the company has been making a lot of profits before being bought by the BMW but after the process the company has experienced a lot of loses. This has a negative effect on the BMW strategy because it is not able to make the profit set and also it has to use a lot of cash to improve the product of the Rover Company that is uncompetitive (Ireland, Hoskisson, &Hitt 2007).
The Rover cars are old and uncompetitive in the market and this has made the BMW Company to stop replacing them for a while. The merger and the acquisition strategy cam lead to great lose if not well managed as the business is not able to meet its aims. Another problem that the BMW strategy has faced is cultural problem. This is because the business has to enter into new markets that are dominated by the Rover Company. The BMW has to enter into the Indian market thus causing change of culture. The new culture brings difficulty in management as the management is diverse thus affecting the roles of the managers. The managers have difficulties in coping with two cultures and this result to the managers straining.
The cultural problem has brought negative attitude into the business affecting the performance of the business. The cultural issues have affected the implementation of the BMW mergers and acquisition strategy as the managers are less concerned and they also set a low target for the business. The BMW mergers and acquisition strategy has been difficulty to implement because of conflict between the two companies. This has made the companies to take time to implement the business. The BMW Company has had difficulties in restructuring. This is because of the financial difficulties and also the product in Rover business being very old and less competitive making the business to invest a lot finances. This has forced the BMW to stop the innovation process for a while so as to get enough money to restructure the product (Sudarsanam 2003)…
A joint venture is legal entity that is formed between two or more companies so as to help the two companies in undertaking an economic activity together and also sharing risks in the venture. The companies that enter into a joint venture agree to create a new product by contributing equity. The firms share the management of the firm, the revenue and the asset and the expenses. There are several reasons why joint ventures are formed. The joint ventures can be formed to minimize economic risks. Some companies enter into joint venture so as to minimize the entry risks by using the local partner’s asset (Ketchen, &Bergh 2006). Other companies enter into joint venture because they have no enough information about the legal environment. Some of the companies enter into joint venture because they lack access to borrowing powers and through the new venture the company is able to get access to borrowing powers.
The foreign companies enter into joint venture because the company cannot be allowed to operate alone but with another company that is not foreign the company can get access to operations in the country. The company may also want to have access to local resources and foreign technology. The BMW has formed a joint venture with PSA. The two companies have formed a corporation to jointly develop and produce new small 4 cylinder petrol engine that incorporates the latest technologies. The purpose of the joint venture between the PSA and the BMW is to develop a new engine to be used in Peugeot and Citroen cars (Ketchen, &Bergh 2006). The two companies are to develop the engine using the new technology. Another reason why the BMW and the PSA have entered into the joint venture is to share the economic risks by ensuring that there is transparent management between the two engine plants so as to manage the quality issues. The companies also need to manufacture products that are better using the technology thus improving product quality as the companies have access to technology.
The joint venture is aimed at acquiring new materials for developing the new engines. This is because the companies have assimilated into the industrial plan the two plants that is the Harville and the Mulhouse so as to provide raw materials to the joint venture(Ketchen, &Bergh 2006).. The companies have also entered into the joint venture to share resources. For example the BMW in this joint venture has developed the engine and the PSA has provided logistic support for the production of the products. This shows that the two companies have formed the joint venture to assist each other in growth because the BMW has good technology to develop the engines while the PSA has good logistics. With the contribution of the two companies they have managed to develop the engine (Ireland, Hoskisson, &Hitt 2007).
Another reason why the two companies have formed the joint venture is to improve the product line as the production is high and the products have a lot of benefits like the product has a high performing standard, driving comfort and it saves on fuel economy and better emission for carbon dioxide (Hill, &Jones 2008). The joint venture has led to the production unit that is able to be replicated in other sites. It also aimed at increasing the production of the companies. The joint venture between the BMW Company and the PSA Company has been successful because the companies have developed an engine that has high performing standards. The sales from the joint venture have been high as the engine has attracted a large market segment because of its quality (Ireland, Hoskisson, &Hitt 2007).
The joint venture has been influenced by many problems that have led to closer of the business (Ireland, Hoskisson, &Hitt 2007). These include conflict between the BMW Company and the PSA Company. The conflict arose because of the cost of producing the engines. The PSA Company argues that the joint venture is very expensive and it cannot not afford to share development cost with the BMW. This has led to closer of the joint venture. The joint venture has not been faced by cultural issues that affect management in most countries and this has led to its success as the management has been good in the joint venture since one of the reasons for the venture was to improve the management by ensuring transparency between the two companies. The joint venture has also been successful because of the trust between the two companies (Ireland, Hoskisson, &Hitt 2007). This is because the company have trusted each other and cooperated so as to produce the engine.
The trust has led to good management in the joint venture thus its success. The success of the joint venture is also due to the flexibility that the two companies have shown. The flexibility is evidenced by the cooperation and contribution of resources so as to boost the project. The BMW has contributed in the venture by providing technology and the PSA has contributed by providing logistic support into the venture. They have also shared the development cost in the joint venture and this has made the venture successful. The success of the joint venture is as a result of the flexibility, trust, lack of cultural problems and cooperation (Ireland, Hoskisson, &Hitt 2007).The Volkswagen has formed a joint venture with Toshiba to develop an electric car and a high density battery for the electric vehicles being manufactured. These companies have entered into a joint venture to utilize the new technology to develop advanced technology batteries. The Volkswagen Company also wants to increase its market share by covering a bigger market than before. It also wants to improve its product line by creating better products hence increase in sales. The project has been successful because of cooperation and the new technology (DePamphilis 2005).
One of the key threats that the organization is facing today is the new competitors. The threat of new competitors in the market affects the business in different ways. This is because the threat brings new capacity and desire to market share hence putting pressure on the existing prices and costs of goods and services in the market. It also affects the rate of investment in the business environment. The new competitors affect the prices of commodity in different ways. The new competitors make the prices of goods and services to be low if they join a market segment that offers the same product and they offer the products cheaply. They also make the prices to be high and this affects the existing firms (DePamphilis 2005). They also affect the rate of investment that is important for firms to compete.
They make the rate of investment to be high since most of the firms need to produce goods and services that are better than the competitor. This leads to high investments for the firms. This type of competition is common if the firms are producing the same types of goods or products or services. This leads to more development in a country if the competition is high. If the new competitors are diverse from other markets they can shake up competition in the market (Botten 2007). The threat of new competitors affects the profits in the industry. When the threat of new competitors is high in the industry then the existing firms lower their prices so as to attract customers and the new competitors make the profit to decrease. If the firm does not respond to the threat of new competitors well it can affect the business in terms of profit and investments (Botten 2007). When the threat is high the firms that are already in the industry are required to increase their investments so as to overcome competition. The firms have to look for modern ways of investing that are different from the competitor so as to get high profits.
The threat of new competitors in an industry depends on the entry barriers that are present in the industry and the reactions that entrants face from the already existing competitors. If the barriers to entry are high then the threat to new competitors is low but if the barriers to entry are low then the threat to new competitors is high( Botten 2007). The kind of barriers put on the market will determine the kind of competition that is common in the market and its effects. If the barriers to entry are low and the reaction from the existing firms is low then the new firms are likely to join the market at a higher rate and this leads to moderation of the profits in the industry. The threat to new competitors is the one that holds the profits in the industry but not the actual entry in to the market. The organization has used several barriers to prevent new entrants in the industry include the economies of scale that are present in the market. The organization has ensured that there is a great difference between the minimum efficient scale and the entry unit cost so as to keep away new competitors (Botten 2008). This is because if the firm has high minimum efficient scale then the new competitors who want to join the market will not join. It has also used the capital required for investments and other requirements for investment to act as barriers to market entry.
This is because if the capital required for investment is high then most of the new firms joining the market will give up and instead opt for other market segment (Ireland, Hoskisson, &Hitt 2007). This will be a benefit to the organization as it will have enough customers; the profits will be high leading to higher productivity. But if the capital required for investment is low then the new competitors will enter the market in high numbers and this will affect the profits and the customers in the market. The result will be low profits and lack of customers. For example the automobile industries face low threat of new competitors unlike other industries because the capital required for investment in those firms is high and this acts as a barrier to new entrants and these results to low threats and high profits and customers (Ireland, Hoskisson, &Hitt 2007).
Another barrier to threat of new competitors that the organization has used is customer switching costs (Bamford, Casseres, &Robinson 2003). Switching cost affect competition in a market environment. This is because if the customers in that market face switching costs the rational customers will not switch to the new competitor who is offering the goods or services at lower prices if the switching costs outweigh the difference between the two competitors. The switching costs can be in terms of financial needs, time. Then if the consumer does not switch then the existing competitors have an advantage as they can maintain the customers and still realize the same profits. This prevents the new competitors from entering into the market. Collective switching is also used to prevent new competitors from entering the market as it strengthens the competitors who are already in the market and prevents new competitors. This helps the firms to maintain the customers and make enough profits (Bamford, Casseres, &Robinson 2003).
The organization has also formed strong barriers by enacting retaliation measures so as to prevent new competitors. This is because if the retaliation measures are high then the new competitors will have no access to the market and this prevents new entrant into the market. If the retaliation measures are not used in the market then the new competitors will have a good opportunity to enter the market and this will affect prices and profits in he firms. The last method the organization has used is the restriction on access to industry distribution channel. This helps the firm already in the market to prevent new competitors from entering the market and this helps the firms to regulate the profits and customers and investments in the market) (Bamford, Casseres, &Robinson 2003).
In conclusion the merger and acquisition strategy has been used by BMW as it has bought Rover so as to improve the products and also to get new market for its products. The strategy has been successful as the BMW has managed to develop new products but the project has faced a lot of problems (Bohlander, &Snell 2009). These include loss of sales, cultural problems that have made management difficulty. The Volkswagen has also used the merger and acquisition strategy to improve its products and market segment. The project has been successful. The BMW has also used the joint venture and alliance strategy to improve its products and market. It has entered into a venture with SPA to manufacture an engine and the venture has been successful. The threat of new competitors has faced the organization as it has led to low customer and profits. It has also affected the investments. Barriers to entry have been used to overcome the threat to new competitors thus increasing profits and to maintain customers (Bohlander, &Snell 2009)
Reference
Bohlander,G,&Snell,S,2009,Managing Human Resources,Cengage Learning,page 72
Bamford,J,Casseres,B,&Robinson,M,2003,Mastering alliance strategy: a comprehensive guide to design, management, and organization,John Wiley and Sons,page 26
Botten,N,2008,Management Accounting Business Strategy,Elsevier,page 278
Botten,N,2007,CIMA’S Official Learning System Management Accounting Business Strategy: Strategic Level,Elsevier,page 147
DePamphilis, D, 2005, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions, Academic Press, page 5 -500
Hill,C,&Jones,G,2008,Essentials of Strategic Management,Cengage Learning,page 5-162 Ireland,R,Hoskisson,R,&Hitt,M,2007,competing for advantage,Cengage Learning,page 1-334
Inkpen,A,&Swamy,K,2006,Global strategy: creating and sustaining advantage across borders,Oxford University Press US,page 231
Ketchen,D,&Bergh,D,2006,Research Methodology in Strategy and Management, Volume 3,Emerald Group Publishing, page 233
Sudarsanam,S,2003,Creating value from mergers and acquisitions: the challenges : an integrated and international perspective,FT Prentice Hall,page 227
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