Home / Summaries / sum stra / international-strategy-local

M&A (EXTRA)

Q: In a real-world scenario, what aspect would be most difficult to estimate?

Estimating the true value of synergy between companies. Difficult due to subjective factors. Market conditions and integration complexities affect this estimation.

Q: What are the individual and combined values in this acquisition scenario?

Company A : 500 euro Company B : 600 euro Company T : 100 euro Combined value : - AT = 800 euro - BT = 1000 euro

Q: How is the Herfindahl-Hirschman Index (HHI) calculated for market concentration?

HHI formula: (sum {i=1}^n M i^2). Example: 40%, 30%, 30% concentrations result in HHI = 0.34.

68 important questions on M&A (EXTRA)

How much will firm C be willing to pay for firm H?

The difference between the combined value and firm C's value is €300.
Firm C would pay up to €300 for firm H.
This assumes no additional costs or benefits.

In a real-world scenario, what aspect would be most difficult to estimate?

Estimating the true value of synergy between companies.
Difficult due to subjective factors.
Market conditions and integration complexities affect this estimation.

What are the individual and combined values in this acquisition scenario?

Company A: 500 euro
Company B: 600 euro
Company T: 100 euro
Combined value:
- AT = 800 euro
- BT = 1000 euro

What is the maximum amount C will pay for H, and what is the most challenging aspect to estimate?

Maximum C will pay for H: 300 euro
Most challenging: Estimating the combined value

What is the combined value gained by BT in the merger scenario?

The combined value gained by BT is calculated as follows:

Total value: 1000
Cost: 600
Resulting gain: 400
A's willingness to pay: up to 400
Actual price: 301
Shareholders of T's gain: 201 euros

What was the outcome of the proposed MCI WorldCom and Sprint merger in 1999?

MCI WorldCom aimed to merge with Sprint for 129 € bln.
Merger blocked by US Department of Justice and European Commission.
Blocked due to competition concerns.

What guidelines does the European Commission use for assessing mergers?

Guidelines focus on competition impact.
Assess if concentration impedes effective competition.
Concerned with dominant position creation or strengthening.

How is the Herfindahl-Hirschman Index (HHI) calculated for market concentration?

HHI formula: \(\sum{i=1}^n Mi^2\).
Example: 40%, 30%, 30% concentrations result in HHI = 0.34.

According to the European Commission, when is a merger not problematic?

Post-merger HHI below 0.1.
HHI between 0.1 and 0.2, delta below 0.025.
HHI above 0.2, delta below 0.015.

What are the key points of avoiding bankruptcy costs according to Jensen and Ruback?

Bankruptcy can lead to costs such as consumer confidence loss.
Two corporations' cash flow outcomes are independent.
Probability of at least one firm going bankrupt: 19%.
After merger, probability drops to 5%.

What is the Herfindahl-Hirschman Index (HHI) and its significance in mergers?

HHI measures market concentration; value is between 0 and 1.
1 indicates monopoly.
0 indicates perfect competition.
Post-merger differences in HHI can affect merger approval.

Explain the concepts of CAR and the event window in the context of M&A.

CAR is the cumulative abnormal return from the M&A event.
Calculated over several days as the difference in stock price expectations.
Event window includes periods before and after M&A.

What is an acquisition premium and how does it affect shareholders?

Acquisition premium is the difference between acquisition price and pre-merger price.
Typically, 43% premium over pre-merger price.
Target firm shareholders may face negative wealth impacts.

Describe the process of calculating Cumulative Abnormal Return (CAR).

Estimate expected return without acquisition using risk-free equity rates.
Subtract expected return from actual return.
Sum differences over event window for CAR calculation.

What is the Winner's Curse in M&As, and what are its conditions?

Winner's Curse occurs when the acquiring firm bids above the target's value, leading to overpaying.
Conditions:

1. Different estimations of gains.

High competition among buyers.
Pre-acquisition profitability of the buyer.

What is business-level strategy in an international context?

Generic strategies: cost-leadership and product differentiation.
Focus on positioning business in the international market.
Aims to achieve competitive advantage internationally.

What does corporate-level strategy involve in an international context?

Includes vertical integration, diversification.
Strategic alliances and mergers & acquisitions (M&As) across borders.
Decides which businesses to enter internationally.

What are the key steps in achieving a competitive advantage in international strategy?

Mission leads to setting objectives.
Conduct external and internal analysis.
Make strategic choices in business and corporate strategy.
Implement strategies to gain a competitive edge.

What are the strategic motives for companies entering foreign markets?

Companies pursue foreign markets for several reasons:

Gain access to new customers
Access low-cost factors of production
Develop new core competencies
Leverage current core competencies in new ways
Spread business risk across a wider market base

How can a firm gain access to new customers for its current products or services?

Potential for new customers:
- Willingness: Consider physical standards and tastes.
- Ability: Address distribution, trade barriers, and wealth.
Product life cycle extension: Varies by country.
Scale economies: Sales increase can reduce costs.

Why do countries restrict international trade with trade barriers?

Protecting domestic producers:
- Safeguarding jobs from foreign competition.
- Domestic producers may have disadvantages.
Steel industry example:
- Trade barriers create more jobs in steel.
- Results in fewer jobs in downstream industries.

What are the potential outcomes for downstream industries affected by higher steel prices?

Increased steel prices can result in the following impacts:

Higher product prices
Decreased demand for products
Reduced job opportunities

What factors contribute to gaining access to low-cost production resources?

Low-cost production resources can be accessed through:

Raw Materials: available in nondomestic markets (e.g. Hudson Bay Company).
Labour: lower costs in foreign countries like China, despite ethical considerations and potential quality trade-offs.

How can companies develop new core competencies through international operations?

Developing new core competencies involves:

Intent to learn communicated to employees.
Transparency in international business partners varies.
Firms may struggle to learn if resources focus on day-to-day competition.

How do companies spread business risk across different markets?

Corporations can spread risk via:

Allowing equity holders to manage their own risk.
Recognizing barriers to diversification within markets (e.g. China).
Noting that large private firms may prioritize broad diversification.

What are the market drivers identified by Yip that influence internationalization?

Market drivers include:

Similar customer needs across markets.
Presence of global customers.
Transferable marketing strategies across borders.

What cost drivers are relevant to internationalization according to Yip's model?

Cost drivers consist of:

Cheaper factor costs through internationalization.
>Scale economies.
Country-specific differences and favorable logistics.

How do competitive drivers influence a company's decision to internationalize?

Competitive drivers encompass:

Activities of other firms entering international markets.
Interdependence between different countries.
Competitors’ global strategies affecting market dynamics.

What government drivers can affect internationalization?

Government drivers include:

Favorable governmental regulations for businesses abroad.
Trade policies impacting business operations.
Technical standards and host government policies influencing market entry.

What are the key aspects of labor costs in international markets?

Key aspects of labor costs include:

Significantly lower costs in countries like China.
Ethical considerations about the well-being of workers in less-developed regions.
Variability over time and potential trade-offs with quality.

What is the trade-off in global product strategy?

Balancing between standardization and adaptation across national markets.
Local responsiveness: Non-standard product, local needs, decentralized control.
International integration: Standardized product, economies of scale, centralized control.
Challenges include integration costs and scale advantages.

What is a Global strategy within international strategy?

Prioritizes international integration.
Focuses on centralized operations to gain efficiency.
Offers standardized products across all markets.
Achieves economies of scale.
Suitable for industries with low local responsiveness.

What is a Multidomestic strategy within international strategy?

Focuses on local responsiveness.
Adapts products/services to fit local markets.
Decentralizes operations.
Less efficiency but higher local customer satisfaction.
Suitable for culturally diverse markets.

What is a Transnational strategy within international strategy?

Balances local responsiveness and international integration.
Coordinates global efficiency and local adaptation.
Complex structure with some centralization.
Suitable for industries needing both global and local advantages.

What are the main characteristics of a global strategy?

A global strategy features:

Interdependent business units in each country
Standardized products across markets
Focus on economies of scale and efficiency
Centralized decision-making at global headquarters

What are potential drawbacks of employing a global strategy?

A global strategy may face issues like:

Ignoring specific local needs of customers
High coordination costs between operations
Increased complexity in managing diverse locations

What defines a multidomestic strategy in international business?

This strategy focuses on:

Variations of competition in each country
Customized products for local needs
Decentralized decision-making
Tailored approaches based on local customer preferences
Examples include Italy vs. Netherlands decisions

How would you describe a transnational strategy?

A transnational strategy involves:

A mix of multidomestic and global strategies
Flexible coordination and shared vision
Balancing cost efficiency with differentiation
Use of international repositories for ideas and technologies
Achieving local responsiveness and international integration

What are the characteristics of a decentralized federation organizational structure?

This structure is marked by:

Strategic and operational decisions at country/division level
Delegation to business units
Aligns with a multidomestic strategy
Fosters local autonomy in decision-making

What does a coordinated federation entail in an international firm?

A coordinated federation features:

Delegated operational decisions
Strategic decisions centralized at headquarters
Shared activities managed by a corporate center
Synergy between local and central operations

Describe the centralized hub organizational structure in global strategy.

In a centralized hub structure:

All strategic and operational decisions are made at headquarters
Ensures uniformity across global operations
Supports the implementation of a global strategy
May limit local responsiveness

What is the role of a transnational structure within an international strategy?

A transnational structure involves:

Constant scanning of business operations across countries
Identification of resources and capabilities for competitive advantage
Incorporation of successful practices from various divisions
Focus on both local and global integration

What tactics are effective for early market development in international entry modes?

Export, licensing, and strategic alliances are key tactics.
Useful for initial market entry.
Strategic alliances offer options but risk knowledge leakage.
Important for uncertain markets.

What challenges are associated with wholly-owned subsidiaries and acquisitions in international markets?

Wholly-owned subsidiaries and acquisitions are complex.
Require significant investment.
Challenging to manage processes.
Part of hierarchical governance strategies.

How are international entry modes categorized in the table provided?

Market governance: Exporting
Intermediate market governance: Licensing (franchising), Non-equity alliances, Equity alliances, Joint ventures
Hierarchical governance: Mergers, Acquisitions, Wholly owned subsidiaries

What is the primary activity associated with exporting?

Production occurs in one location and shipping is done elsewhere.

No operational facilities needed in the host country
Low cost and limited risk exposure
Testing international projects is possible
Economies of scale can be achieved in the home country

What is the essence of licensing or franchising?

This involves a written agreement allowing another to use property under specified terms.

Examples include brand and intellectual property licensing.
Permits income and reduces costs and risks.

What are challenges associated with strategic alliances?

Challenges can involve:

Partner performance monitoring difficulties
Challenges in finding suitable partners
Complex integration and coordination
Possible disputes and cultural clashes

What are the advantages of making acquisitions in another company?

Key benefits include:

Full control
Integration and coordination within the firm
Rapid market entry

What are the disadvantages associated with acquisitions?

Major drawbacks include:

Substantial investment and commitment
Complex negotiations and transaction requirements
Culture clash

What defines a wholly owned subsidiary?

A wholly owned subsidiary is characterized by:

Establishing a subsidiary in a foreign country
Parent company owning 100% of the ordinary shares
Unlike acquisitions, it is a new entity

What are the advantages of establishing a wholly owned subsidiary?

Advantages include:

Full control
Integration and coordination within the firm
Access to information from the non-domestic country
Limited probability of cultural clashes

What are the potential disadvantages of creating a wholly owned subsidiary?

The challenges are:

Substantial investment and commitment
Time consuming and slow process
Complex process leading to unpredictability and costs

What is PESTEL analysis used for in an international context?

A PESTEL analysis helps in comparing countries for entry by evaluating several factors:

Political
Economic (e.g., GDP differences)
Social (e.g., population characteristics)
Technological
Environmental
Legal

Define "Power distance" in Hofstede's cultural dimensions.

Power distance refers to:

Expectation of power inequality
Acceptance of unequal distribution of power
Measurement of less powerful members’ acceptance of authority

What does Individualism represent in Hofstede's analysis?

Individualism measures:

Degree of interdependence
Social relationships
Emphasis on personal goals over group goals
Cultural preference for independence

Explain "Masculinity" in Hofstede's cultural dimensions.

Masculinity relates to:

Work motivation factors
Desire to be the best
Enjoyment of work (Feminine perspective)
Gender roles and values in society

What is the significance of Uncertainty avoidance in culture?

Uncertainty avoidance indicates:

Cultural response to ambiguous situations
Feelings of threat by the unknown
Institutions created to minimize uncertainty
Impact on decision making and risk

Describe the concept of Long term orientation in a culture.

Long term orientation reflects:

Connection between past and present
Maintaining traditions while facing challenges
Planning for the future
Cultural focus on perseverance

How does Indulgence differ from Restraint in cultural contexts?

Indulgence vs. Restraint indicates:

Control over desires and impulses
Weak control is termed “Indulgence”
Strong control is “Restraint”
Cultural descriptions based on behavior

What factors affect the legal environment for investment as per the World Justice Project?

Legal environment influences include:

Rule of law index
Corruption levels
Property rights definition
Contract enforcement difficulties
Impact on investment decisions

What does arbitration mean in the context of legal differences?

Arbitration entails:

Agreement to resolve disputes
Avoidance of court proceedings
Use of a third-party mediator
Provides a way to handle conflicts

What defines financial risk in an international environment?

Financial risk arises from:

Differences and fluctuations in currency values
Inflation impacts
Example: Scottish company selling whisky to a French company results in reduced revenue due to currency changes during delivery.

How does currency hedging help manage financial risk?

Currency hedging includes:

Foreign currency options that provide rights to buy/sell currency at set rates
Forward contracts lock in exchange rates for future transactions
Example: Whisky company secures £8,900 for expected €10,000.

What is geographical diversification in managing financial risk?

Geographical diversification means:

Spreading risk across multiple countries
Ensuring exposure to different markets reduces the impact of localized issues.

What are the components of political risk?

Political risk includes:

Government instability
Conflict and war
Regulations and corruption
These factors can significantly impact investment decisions.

How can political risks be effectively managed?

Managing political risks involves:

Selecting safe countries for investment
Identifying local partners
Negotiating with governments for favorable terms
Acknowledging risks in 'risky' countries.

What are the challenges when investing in risky countries?

Challenges include:

Government instability and regulations
Need for local partnerships
Balancing opportunities with potential negative impacts on business
Example: Airbnb's issues with Dutch regulations on short rentals.

The question on the page originate from the summary of the following study material:

sum stra

View summary

A unique study and practice tool
Never study anything twice again
Get the grades you hope for
100% sure, 100% understanding

Remember faster, study better. Scientifically proven.