Why are merger and acquisition strategies popular in many firms competing in the global economy?
Mergers and acquisitions are popular in firms competing in the global economy because of their potential to increase a firm’s market power, help it overcome barriers to entry into a new market, and reduce the cost of development and launch of new products (Hitt et al., 2016). Such a strategy increases the market share of the acquiring firm and subsequently means enhanced profitability and reduced competition. Firms also use the advantage of mergers and acquisitions to reduce risks and shape the firm’s competitive scope (Haeruddin, 2017). Unlike setting up anew in the host country, this approach allows the firm to address economies of scale and customer loyalty. Mergers and acquisitions allow firms to compete globally to increase their product diversification capacity, and to develop new production, supply, and operational capacity (Schiffbauer et al., 2017). This approach permits the business to introduce multiple products, which would otherwise be unachievable. Lastly, increased activity by the firm is beneficial to the stakeholders as it results in increased value.
What are the strategic competitiveness outcomes firms can reach through international strategies, particularly through an international diversification strategy?
There are at least five competitiveness outcomes that firms can reach through international strategies, particularly international diversification (Stadler et al., 2018). International diversification allows the ability of a firm to extend the product life cycle. A product will have different life cycles in different host countries. International diversification also allows firms easy access to raw materials and other resources that may be scarce in one market (Gyan et al., 2017). For instance, the business may establish its production plant in a different country and ship it to its target market at a profit. This strategy also allows a firm more opportunities to standardize its operations and integrate it into global operations. Also, within the context of a globalized market, international diversification allows firms to employ evolving technologies (Hitt et al., 2016). Lastly, international diversification offers firms extended access to emerging markets and consumers.
References
Gyan, A. K., Brahmana, R., & Bakri, A. K. (2017). Diversification strategy, efficiency, and firm performance: Insight from an emerging market. Research in International Business and Finance, 42, 1103-1114. https://doi.org/10.1016/j.ribaf.2017.07.045
Haeruddin, M. I. M. (2017). Mergers and acquisitions: Quo Vadis. Management, 7(2), 84-88. https://core.ac.uk/download/pdf/225147479.pdfHitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Concepts and Cases: Competitiveness and globalization. Cengage Learning.
Hitt, M. A., Li, D., & Xu, K. (2016). International strategy: From local to global and beyond. Journal of World Business, 51(1), 58-73. https://www.researchgate.net/profile/Michael_Hitt/publication/280625154_International_Strategy_From_Local_to_Global_and_Beyond/links/5a7cd77f458515dea40f0e59/
International-Strategy-From-Local-to-Global-and-Beyond.pdfSchiffbauer, M., Siedschlag, I., & Ruane, F. (2017). Do foreign mergers and acquisitions boost firm productivity? International Business Review, 26(6), 1124-1140. https://www.econstor.eu/bitstream/10419/50084/1/607534958.pdf
Stadler, C., Mayer, M. C., Hautz, J., & Matzler, K. (2018). International and product diversification: Which strategy suits family managers? Global Strategy Journal, 8(1), 184-207. https://purehost.bath.ac.uk/ws/portalfiles/portal/158134264/Accepted_Version.pdf
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