Section 1: Mergers and Acquisitions

Merger and Acquisition are a growing phenomenon now a day that has raised head in the
twentieth century. Firms use external and internal growth for its expansion. Internal growth
involves retaining earnings and by using of cash flow and external expansion involves
purchasing or merger with another existing firm. Merger and Acquisition activities are periodic
in its character and in wave form.

Organizations usually choose Mergers and Acquisitions:

To gain market share

To enter new markets or launch new products

To diversify into related areas - where a company moves out of its current products and
markets into new areas. Development beyond the present product market. But still
within the broad confines of the industry. Those that are complementary e.g. H.P printers
and PCs. Those that have similar characteristics to the current business areas e.g. Porter
and Gamble: Beauty care, home care etc.

To diversify into unrelated arenas i.e. development beyond the present industry into
totally new products and markets. Moving beyond its current scope or industry,
exemplified by conglomerates such as Siemens, Virgin, General Electric(GE).

To increase its size.

And finally to obtain more power.

In real practical world, to figure out the existence of the mentioned strategies we may select two
different companies, 1. Wal-mart; one of the biggest retailers of the world, 2. Google Inc; that
deals with the worlds utmost software and information technology.

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Task (a):

In this task we will look for the main reason lies in mergers and acquisitions and divestments as a
method of development between the two mentioned companies.

Case Study: Wal-Mart;

Wal-mart has been founded by Sam Wilton and the first store was opened at 1962 in Rogers,
Arkansas, USA. After 17 years the annual sales has been topped $1 billion. And this trend has
made Wal-mart worlds largest retailer by the end of January, 2002 and with $218 billion in sales.

Its winning tragedy was in low cost selling of the products but they were branded too. Now it has
more 3200 stores in USA and more than 1100 in Mexico, Puerto Rico, Canada, Brazil, Germany,
Korea, UK and in Argentina. Fortune magazine has named Wal-mart as the third most admired
company in the US in the year 2001 and financial times; PricewaterhouseCoopers has ranked it
as the eighth most admired company in the world. But in the following year, it has named in 1
number in the Fortune 500 list.

It has acquired and merged with some renowned companys worldwide for the following
reasons:

1. In the UK it has merged with ASDA; a renowned retailer in UK, to use the market value
of that company. And thats why they have easily expressed with 229 stores in UK
2. In Canada the merger with the Woolco stores to expand with 122 stores in this country.
By this they have gained a number of market shares in this country.

3. Wertkauf stores are one of the renowned brand names in Germany. Wal-mart has entered
in Germany by merging with this company to gain the market share and to use the brand
name to get easy access in Germany.

4. This takeover or merger strategies by wal-mart has kept it at forefront in the time of
entering in new market to minimise a number of competitors.

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 5. This strategy also helped it to trade in local brand name to be more friendly with the
customers.

Case Study: Google Inc

Google Inc. Is the most renowned multinational computing and Internet search Technology
Corporation. It hosts and develops various internet based services and products. The main profit
generating section of this is its Ad Words program. Larry Page and Sergey Brin have founded the
company during their studentship of PhD program at the Stanford University. The companys
main mission is to organize the worlds information and make it universally accessible and useful
for everyone. Later it has move to its current headquarter in Mountain View, California.

It has over one million of servers in the world and can processes more than one billion search
request and 20 P. Bytes of user data every day.

It has also some merger and acquisition to gain success in the current world. They may extend
as:

1. It has acquired Keyhole Inc. who has developed the product Earth viewer, to give its
customer a 3-D view of the earth. Later they have renamed it Google earth. They have
acquired it to present themselves with modern software as well as for business.
2. In 2007 it has bought YouTube, a most spectacular site for viewing and sharing videos
online. It has made Google to step ahead in its popularity and gained more subscribers.
3. DoubleClick, a renowned website for web publishing and advertisement agency has been
acquired by Google to acquire more customers with its utmost services.
4. Google acquired GrandCentral which will they change to Google voice later to add
another service in its column.
5. A social network search engine, Aardvark has been acquired by them to get a network of
the users and to serve them with better service afterwards.

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Task (b):

To gain success in Merger and Acquisitions, the companies has to look for some criteria and they
are in need to fulfil them. They may be illustrated as,

1. Companies should be similar in their characteristics and culture.

2. Merger and Acquisition strategy should be clear and unique.
3. To get rid of and distract from rumors, major decisions should be adopted within 10 days
of initial announcement.
4. Need to be brave and integrate the 2 cultures 67% of the respondents pointed to
cultural integration as the critical success factor in an Merger and Acquisition deal (The
economist Intelli Unit, 2006)
5. The merged or acquired company should be working together as one after they have
established their merger of 100 days.
6. Companies should be in same type and same patterned business that will make them
easier to be merged.

As two or more companies are merging, there some problems may arise and they may be like
these:

1. Wrong companies may have chosen-need for due diligence

2. Cultural clashes.
3. Communication lacking at all the respective levels.
4. Lack of clear execution plan.
5. Resistance to change - loss of motivation, employee turnover etc.
6. Preferential treatment one of the companies that are dominant may get preference.

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In the two companies for the above case study, we can find the following problems and success
in their merging and acquisition strategy.

a. Wal-Mart:
1. Different marketing strategy in different country/place
2. Management clash with new system
3. Difficulty in implementing management decision
4. Has lost its brand name due to merger.
5. Needed to adopt different management and skill system in the following area.

b. Google Inc.
1. It had to invest a huge amount of money for acquisitions
2. It has fallen in conflicts with the acquired companies as their marketing approaches
are different than the Google one.
3. A huge amount has been invested, so there is a possibility of being a loss as there are
more competitions in the information sector.
4. Due to the redundancies in the current world, it is now facing some economic
competitions in the world.
5. To acquire with the different companies, it had need to bring about huge changes in it.

To overcome the conflicts, some steps can be taken in three different sectors of merging. The
actions can be summarized below:

a. Pre-Merger:
1. Clarify strategy and rationale
2. Perform due diligence
3. Develop a shared vision for the future
4. Identify management transition leaders
5. Create and implement communication plan

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a. In Merger / Integration
1. Implement changes close factories, combine departments etc.
2. Manage culture clash

b. Post Merger
1. Assess new organizational culture
2. Re-enforce new behavior of staff
3. Communicate with staff to address their concern with the company.

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Section 2: Joint Ventures and Strategic Alliances

Joint ventures:

It is defined as the long-term commitment to use the facilities, services and funds by the two or
more companies that are differ in their interest and separated legally and they are combined for
their mutual benefits. The other form of joint venture stands as to work together through a
common agreement or strategic co-operation agreement. A number of purposes are involved in
joint venture strategy.

1. Manufacture of the product in a target market which offers free trade or in larger markets.
2. Gaining finance and distribution network that needs to enter a new market.
3. Addition of new technology and expertise to the product
4. To get access the market with the name and fame of the other company.
5. It helps to bypass the trade barrier of the different countries of different socio-cultural
interest.

A successful joint venture involves the following:

1. High level of commitments, funds as well as time.
2. Risks, low or high level
3. Different management voices for both parties.
4. Participate equally by both partners.

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Joint Ventures

Possible Advantages Disadvantages

1. Direct imports are affected by trade 1. High capital cost and financial support
barriers. are needed.
2. Influences of environment of foreign 2. Profitable returns may take long time
investment environment. then usual.
3. A prospective partner is furnished with 3. Staff and management commitment
more skills and resources. should be high.
4. It gets very easy to come to the 4. This process requires more time.
customer with the banner of local 5. There should be conflicts with the joint
jointed company venture.
6. Different cultures and communication
difficulties may arise.

Strategic Alliances:
This is a specific form of collaboration between two or more companies. This is some sort of
joint venture where the companies are join with their strategies. The collaboration may be in
broader way or in some specific categories. Virtually this collaboration is in any form between
those companies which may include one or more of the following activities:

1. Contracts in design.
2. Agreement to transfer the technologies
3. Development of the product jointly
4. Agreement in purchasing
5. Agreement in distribution
6. Collaboration in marketing and promotions, and
7. Intellectual advice etc.

Strategic alliance and its characteristics:

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 1. Generally in a non equity and in loose structured relationship
2. Both the partners are independent in their business strategy.
3. In this joint venture, if a company takes a lead role in any contract or marketing then the
other acts as the Partners of work and they may be as subcontractor or supplier to the
main company.
4. The relative sizes of the partners should not be significant factor.
5. Licensing technology, this sort of agreements can be set up to contribute the distinctive
core strength.

In this strategy, we need to consider some facts as mentioned:

Advantages Disadvantages
1. Leverage increase: 1. Higher commitments of time, money and
The alliance allows the companies to use core skilled people.
strengths of one another.
2. It sometimes difficult to identify the new
2. Risk sharing: partner.
Alliances with the international or other company
minimizes the risk of exposure to the market.
3. The strategic priorities may get change
over the time period.
3. Growth opportunities:
Alliances bring a chance for the smaller companies
to grow in its sizes and structures. By this 4. There may exist of potential risks in the
business can be expanded over territories. host country.

4. Responsiveness:
5. When the relationship come to an end, the
Strategic alliances provide the capability to get a
ownership, market intelligence and the
quicker response and opportunity.
joint based products stands a great issue.

Task (a)

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Case Study: Wal-mart

The main reasons for joint venture and alliance of Wal-mart with other companies are described
below:
1. It has joint venture in China to get access in that country as the Chinese government does
not allow foreign companies trade in their country.
2. It has an alliance in Mexico as named Walmex to be more popular and acceptable with
this name.
3. In Japan it has joined with Seiyu by buying of its 53%.
4. CHARCO, an American retail holding company has joined with Wal-mart by selling
51% of it and it has broaden the market of Wal-market to established 360 supermarkets
as well as other different stores in the Guatemala, El-Salvador, Costa Rica, Honduras and
in Nicaragua.
5. To enter the Brazilian market, it has joined with 116 stores in the Bompreco supermarket
chain. After that it has taken control of Sonae distribution group through WMS
Supermercados do Brasil and thus taken control of the Nacional and Mercdorama
supermarket chains.
6. To gain Indian they have joined with Bharti Enterprise to open retail stores in India as the
Government do not allow to directly enter foreign companies in the retail sector. So in
this strategy, Joining has gained a major success for Wal-mart.

Case study: Google Inc.

1. In 2005 it has partnered with NASA Ames Research Center to build the 1000,000 sft of offices
that would be used for the research projects that involves large-scale of data management,
nanotechnology etc.

2. Later 2005 it then partnered with Sun Microsystems to help share and the distribution of each
others technologies.

3. Google has also partnered with Microsoft, Nokia and Ericsson to develop application suite for
the mobile devices.

4. NORAD Tracks Santa are being sponsored by Google from 2007. The service was started by
the North American Aerospace Defense Command.

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Task (b)

The strategy of joint ventures was more successful than that of failure. As this joint venture has
given the organization a chance of being shared each others resources. But it also gives
rise to some other problems and the companys encounter some difficulties too as it has
been illustrated in detail above.

Wal-mart Case:

It has seen that the wal-mart has been in success with the joint ventures and alliances in business
over the territories. But in some territories like China, Korea and in India it has faced a threat
over the time period and at the time being they had to close the business or sell it to other parties
at a lower rate.

There had been a great conflict of Wal-mart with other joined companies in taking managerial
decision. As the host company always try to adopt his own strategy. And sometimes they could
not use their trade name while they are a leading shareholder of that company in that country.

Google Case:

As Google is mainly an information technology company and the development in this sector is
rapid than others, therefore it is facing a higher competition than others. Though it enjoying
benefits of being merged with other giant companies, but it also faces the time to time
competition as well as economic threats from the giant technologies like Microsoft, Yahoo etc.
And sometimes it faces a huge threat from its joined companies too.

Section 3: Key threat facing the organizations

There are a number of threats are in operation against the success of the companies have been
selected. To find out the key threats facing by the organizations we need to analyze them
in a proper justified way.

The PESTEL Analysis:

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1. Political Environment: The political situation of the environment has a greater impact
on the company. Different policies, strategies, government steps etc are of greatest issues.

a) Taxation policy: A company has to face this threat in different countries. They face
different taxation policies in the investment in infrastructure, to build business area,
airports, transportation etc.

b) Political Stability: In a democratic country there should be a political government. And

the companies generally have to follow the present government policy for its business
while the change of the government is in result of new strategy that may hamper the
company a lot.

c) Terrorism: Now a day this is one of the most important key threats for any organization.
The terrorists to success in their claim may perform terrorism activities that may be faced
by the organization.

d) Corruption: Greediness in human being involves himself or herself in corruption. If the

reliable management gets involved in such corruption, it brings a great havoc for the
proposed company.

2. Economic Environment: This is the most important threats are faced by the companies
in the 2010 as a form recession. There are several factors controls this factor.

a) Fluctuations in Currency: One of the most important variables in current trade market.
It has a direct impact on any business to deal with. It creates a continual change in all
currency and trade sector for the company.

b) Inflation of Currency: It also creates a similar problem like the previous but in reverse
order.

c) Interest rates: Different interest rates give rise to different transactions and it acts as a
source of threats too.

d) Energy Costs: Every organization have an issue of some mandatory expenditure.

Expenditure for the energy is one of the major elements that costs huge amount. To run
the organization properly it needs more consumption of power as well for expansion,
presentation, maintenance etc.

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e) Transportation: It does also cost an amount like energy. If it needs to transport the
products from abroad, the total market value would be increased as well as act as key
threat for the company.

3. Socio-Cultural Environment: Social and Cultural structure of any relevant place has a
great impact in organizational business and structure.

a) Demographics: This status of the surround environment like the profile of a country, its
populations growth and the ethnicity have some impacts of choosing the organizational
trade strategy and therefore involves in threats too.
b) Religion: The concentration of any specific religion in a specific area can control the
organizational behavior.
c) Educational level: literature rate and the level of education reflect the business strategy
of a certain area. It will set out the policy how the people are accepting the organization
positive or negative manner.

4. Technological: One of the main key points that effects the modern business strategy.
Now a day a proper organization has to set up and maintain the MIS (Managing
Information Strategy) by which they can get a key contact with their consumers. By
improving in the technological sector, they can present their products, offers,
improvement etc. very easily as well as the customers can participate with this in
technological way like internet and can trade with ease. So the technological
improvement as well as the technology user has a great impact in modern organizational
behavior.

a) Internet using level: How many users are well adapted with the internet and the
availability of using it brings a broader impact with the organization as their online
participation with the organization depends on it.

b) Development of websites: More websites development is a pre-requisite of online

trading. So an organization should have to look for it too.

5. Legal: Finally the legal issue has to take in consideration for the strategy of any
organization. The company has to abide by them and sometimes it acts key threats too.

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 Level of crimes, payment rate in certain countries, health and safety regulation are in
need to be in consideration.

Competitive environment:

In the present days every organization has to face the competition with other organizations and
the environment sometimes gets more difficult for them. Five forces by Michael Porter have
been established.

1. Threat of new entrants: It acts as a great barrier for the entity in a new environment.
2. Power of suppliers: The supply and demand are co-related. So the capacity of supply
according to the demand of consumers is need to be in consideration.
3. Power of buyers: It is same phenomenon as the previous where if the supplier is strong
but the poor buying rate brings negative trends in business.
4. Substitute and their threats: this sort of threats rise from cars, planes, bus, trains etc.
5. Competitive rivalry: This affect comes from the number of competitors.

From above the threats, the most common threat that are being faced by the organizations in this
current year 2010 is Economic downturn as it has affected almost all the organizations in the
current year of world recession.

Wal-Mart case:
It has also faced several threats but we will discuss the common key threat in its perspective and
it is also the economic downturn. Now a day they are taking a number of steps to get rid of or
restructuring them to stable even in downturn. But however, it had bound to face some of them
and the key threats are illustrated.

In North America, it has faced a downturn in economic sector from the department stores namely
Kmart, Target, Meijer and ShopKo, Zellers, and in Mexico from Mexicana and Soriana. Its
Sams club division has faced competition from Costco etc.

In the Germany it has faced a serious economic loss by competition from Aldi and in July 2006 it
has withdrawn all his shares from here and they sold their shares to German company Metro.
May 2006, if has faced a huge loss and sold all its 16 stores to Shinsegae for only $882 million
which were rebranded as e-mart stores.

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Google Inc. Case:
Google who is a highly technological business organization, have also faced the economic
downturn in the recent years of recession. As it has invested a huge amount of its capital of
acquiring and joint venture purpose, now a days it is facing a huge competition from their
counterparts. Bing an web based search engine recently developed and launched by Microsoft
in replacing of Live search, MSN search and Windows live search, recently competing with
Google. It is known that the Microsoft is one of the best popular Information technology
organizations, it has a huge users and a number of user of hotmail which was also acquired by
Microsoft. And they have diverted a group of people from Google from being use of it. Google
are now thriving hard to get rid of the financial crisis by adopting Ad Sense (A subsidiary of
Google that involves in advertisement) and showing the Ads in its You Tube video.

The common threats that are being faced by the above companies, it needs to be resolved in an
effective managerial way. Some common innovative ideas can be recommended in the different
sectors of the organization. They may be illustrated below:

1. Management and organization: The management is the central location of any successful
organization. So it needs to implement urgent attention in this sector. The management quality
should be distinct in taking proper decisions, it need to adopt effective Planning information and
Control systems.

2. Finance: One of the most important key components of a successful company and thats
why the management bodies should have to look for intensive care in it. Profit margin,
Debt quality ratio, inventory ratio, return and investment are all important issue.

3. Production: An organization has to have a quality product of it that is the basic

requirement of the organization. The product should be modern and user inquired. And it
should be competitive with other similar products in the market thus in a good product
marketing level.

4. Marketing: Quality marketing is a pre-requisite for a successful business organization.

For lack of proper marketing the consumer are in ignorant of about the products thus lack
profit and lack success strategy for the organization.

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5. Human resource: Not only the product and finance can lead a company to
success, it also needs its proper trained and qualified manpower. And the human resource
department of any company should have to look for and take care of its manpower.
Recruitment and selection process should be unique and meet the quality and
competition. The manpower needs to be trained in the interval of time too.

6. Managing Information System (MIS): This is one of the most important

sectors of a successful organization in modern days. Most of the companies are now
adopting this service for its business growth. In this process customers are in a flexible
mode of shopping and transaction online at any time of the day and thus help in business
development.

7. Research and Development: Finally the successful business strategy relies on the more
and more research of the organization, of its various departments, find out the pros and
cons of if and thus create formulas to resolve the raised issued and finally the
development in a managerial way.

All of these strategies, if implemented properly, I hope any organization can expect its success in
the future.

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END

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