Mergers and Acquisitions as a Mode of Entry

3462 WordsOct 5, 201214 Pages
Introduction: Entry Modes: How are Mergers and Acquisitions different? The mode of entry is a fundamental decision a firm makes when it enters a new market. The mode of entry affects how a firm faces the challenges of entering a new country and deploying new skills to produce and/or market its products successfully. A firm entering a foreign market faces an array of choices to serve the market. According to Johnson and Tellis 2008 the entry mode choices can be grouped in 5 classifications: 1. Export: a firm’s sales of goods/services produced in the home market and sold in the host country through an entity in the host country. 2. License and franchise: a formal permission or right offered to a firm or agent located in a host country to use…show more content…
(Ibid 1) Why Mergers and Acquisitions? If a firm wishes to deepen its expertise in a specialty and to do so quickly, then merging or acquiring a firm that possess such expertise is a viable step. A merger or acquisition might also be appropriate if a firm wishes to expand its practice area capabilities or to expand its geographical presence or achieve economies of Scale. According to Brennan (2004) other reasons for mergers and acquisitions include revenue synergy, acquisition of market power, diversification and a bargain presenting itself: • Revenue Synergy. The new firm will be greater than the sum of the individual parts. Stronger management skills could add to the synergy. Cross-selling opportunities can offer tremendous potential, provided that the integration of the two firms is solid enough to enable such cross-selling. • Acquisition of Market Power. Firms often merge in order to create a stronger competitor, often because, as mentioned above, they are deepening expertise or their ability to compete in new areas, the combination might provide new marketing strengths. 2 • Diversification. A merger or acquisition will add new services or a presence in new geographic locales. • A Bargain Presents Itself. A crisis situation at another firm has driven it to seek a merger or accept acquisition, and such a rescue would fit with

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