After a business has gone as far as they can on their own in a global expansion effort, it might be time to join forces with another company, particularly if that company is located in a country of interest. The business’s needs determine whether to form an alliance or undertake an acquisition. Understanding how these partnerships work is important to any international business executive.
A coffeehouse and a bookstore—the idea of comfortable spaces to read, work, and drink coffee makes perfect sense to us now, but it was groundbreaking back in 1993 when Starbucks and Barnes & Noble joined forces. Perhaps your grandmother loved books and often visited Barnes & Noble in the 90s, and that alliance with Starbucks (who she thought of as a “young people” business) turned her into a specialty coffee drinker. This is an example of a strategic alliance. Since then, many others have followed suit for better customer experience and higher revenue (French, 2014). This type of cooperation is a win for everyone involved with double the reason to visit B&N. Let’s look at both alliances and acquisitions.
An alliance is the coming together of two or more firms to create a unique organization entity (such as a joint venture) where each firm keeps its individual identity and internal control. The goal is to achieve joint strategic goals, reduce risk while increasing rewards, and leverage resources (Alliance, n.d.). Typically, an alliance happens between two corporations (sometimes more) for a specified amount of time to create a new venture and maximize their competitive edge (Delaney, 2019). An alliance can be extremely successful without a huge undertaking or a lot of risk.
An alliance allows companies to connect over a specific objective and create benefits that would be greater than their individual efforts (French, 2014). This might result in many advantages: increased sales, new markets, improved time-to-market, and larger profits. The overarching idea is that both companies benefit by using each other’s strengths.
Other than Starbucks and Barnes & Noble, an example of a successful alliance occurred between Visa and Marvel Comics. Visa hoped to educate children about financial literacy, so they turned to Marvel for help. Together, they created a comic book that teaches money management to children. This partnership achieved a specific objective that benefitted both companies (French, 2014). This is a project-specific objective that turned out to be a great fit. Another example of a wise partnership includes Disney doubling their stake in Hulu, which brings Disney’s presence into the streaming market.
In relation to Capri Hills Winery, an alliance with an established company in their target country would be a benefit to both parties. For example, a strong alliance might be Capri Hills and a beer maker in Belgium. Capri Hills would be bringing in American wine, which has a great appeal overseas, so the beer maker would increase in sales. They would, in turn, share critical knowledge and information about the foreign market with Kelsey and Joseph.
“An acquisition, on the other hand, is when one company purchases most or all of another company’s shares to gain control of that company” (Kenton, 2019). Acquisitions are common in business, and we usually hear about them when large, well-known corporations are purchased because of the huge and significant amount of money involved and work required. Typically, though, most acquisitions occur between small to medium-sized firms rather than between large firms (Kenton, 2019). Let’s look at an example with companies that most of us are familiar with.
In 2018, Amazon acquired Whole Foods Market and has since seen a profit of $13.7 billion. On paper, they don’t seem to match up: Amazon focuses on quick turnover of inventory and logistical mastery while Whole Foods has the vibe of a local artisanal food shop with time and effort put into every detail (Rivera, 2018). While Whole Foods originally may have had people who avoided them due to their niche reputation and relatively high prices, the acquisition has attracted a new customer base.
Acquisitions are usually friendly, but it’s worth mentioning takeovers, which can be hostile. A hostile acquisition may occur when the target company doesn’t consent to the acquisition, making the acquisition forced and unfriendly. The acquiring firm purposely purchases large stakes of the target company to gain a controlling interest (Kenton, 2019). Many times, the firm goes to shareholders and pays particularly high prices just to gain control.
Whether an alliance or an acquisition, an important tip to remember is to form a strategic partnership. Not all partnerships are created equal, and some are doomed to fail from the start. Some can even be harmful, so a company should carefully do their homework to ensure a strong fit. You want to be sure both companies are compatible with products and cultures, on the same page, and working to accomplish mutual goals (Propati, 2017).
How could Capri Hills approach an acquisition? Perhaps a small winemaker in France is struggling to keep their doors open. Capri Hills could step in, purchase the company, and integrate their wine into the product line. The French winery would make a profit from the sale, and Capri Hills would have a strong foot in the door for the French market.
Alliance and Acquisition in a Global Market
Businesses who seek to form international partnerships are more competitive and strategic. They have learned that they can’t do everything by themselves, so they partner with a company that can fill in where their skills are lacking. Partnering also divides risks among companies. Sharing research and costs provides smart value for the money, while sharing expertise can speed up the process.
Acquisition: When entering a market in a foreign country, buying an existing company in that country could be the easiest way. The established company would already have its own personnel, brand name, and other intangible assets. This helps the acquiring company begin with a solid foundation (Kenton, 2019). Another benefit of an acquisition like this includes the foreign company providing assistance with issues such as translation of documents, conversions, and compliance with packaging.
Alliance: An alliance among two strong companies can reduce the influence of other companies. The head start from their strategic alliance can slow other competitors and maybe even stop them entirely. Reasons for developing strategic alliances include:
• Forming economies of scale (cost advantages due to amount of output produced)
• Enhancing competitiveness
• Dividing risks
• Setting new standards for technology
• Entering new markets
• Overcoming the competition in a market
Whether through an alliance or acquisition, entering the international arena can protect your company against the risk of decline in domestic markets. Most importantly, it can significantly improve your overall growth potential. For growth-minded business owners, the world is their oyster.
Alliance (n.d.). Business Dictionary. Retrieved on March 5, 2020. www.businessdictionary.com/definition/alliance.html (Links to an external site.)
Delaney, L. (2019, October 30). Advantages and disadvantages of global strategic alliances. The Balance Small Business. Retrieved on March 5, 2020. https://www.thebalancesmb.com/global-strategic-alliances-advantages-and-disadvantages-1953552 (Links to an external site.)
French, R. (2014, October 23). Strategic alliances: the what, why, and how of growth through partnership. LinkedIn. Retrieved on March 5, 2020. https://www.linkedin.com/pulse/20141023163807-66284-strategic-alliances-the-what-why-and-how-of-growth-through-partnership/ (Links to an external site.)
Kenton, W. (2019, September 4). What is an acquisition? Investopedia. Retrieved on March 5, 2020. https://www.investopedia.com/terms/a/acquisition.asp (Links to an external site.)
Propati, K. (2017, November 8). Strategic alliance examples that failed and why. Allbound. Retrieved on March 5, 2020. https://www.allbound.com/blog/strategic-alliance-examples-that-failed-and-why/ (Links to an external site.)
Rivera, F. (2018, April 5). Top 5 most interesting mergers and acquisitions of the past year. World Finance. Retrieved on March 5, 2020. https://www.worldfinance.com/markets/top-5-most-interesting-mergers-and-acquisitions-of-the-past-year (Links to an external site.)
Sources of Information
D’Alimonte, D. (2014, December 12). 6 reasons for forming strategic global business alliances. Trade Ready. Retrieved March 5, 2020. www.tradeready.ca/2014/fittskills-refresher/8-reasons-forming-strategic-global-business-alliances/ (Links to an external site.)
How to take your company global (n.d.). Entrepreneur. Retrieved on March 5, 2020. https://www.entrepreneur.com/article/159252 (Links to an external site.)
Part 4 of 4
To finish your international business plan, create a minimum 7 slide PowerPoint presentation with notes, in where you discuss the different alliances and acquisitions that your company will need to be prepared for in the global marketplace. Also, include how you plan to utilize technology and its possible impacts on the company. Include 2 references.
An A-level paper includes reference(s) to outside sources that support your solution.