Under what circumstances are mergers with or acquisitions of other companies a better solution than entering into partnerships or alliances with these companies? How do mergers and/or acquisitions contribute to enhancing a company's position?

Question

What will be an ideal response?

Answer 1

Merger and acquisition strategies are a better solution than a strategic alliance when it comes to: (1) extending the company's business into new product categories; (2) creating a more cost-efficient operation out of the combined companies; (3) expanding a company's geographic coverage; (4) gaining quick access to new technologies or complementary resources and capabilities; and (5) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities. Strategic alliances commonly stop short of formal ownership ties between the partners (although there are a few strategic alliances where one or more allies have minority ownership in certain of the other alliance members). The main benefits of these collaborative relationships is to expedite the development of promising new technologies or products, to overcome deficits in their own technical and manufacturing expertise, to bring together the personnel and expertise needed to create desirable new skill sets and capabilities, to improve supply chain efficiency, to gain economies of scale in production and/or marketing, and to acquire or improve market access through joint marketing agreements. However, strategic alliances are only temporary in nature, and all too often partners in those collaborations go their separate ways, while mergers and acquisitions are permanent.