Merger, Acquisition, and International Strategies
The consolidation of two companies or entities to form one larger entity is called a merger. If one company takes over the ownership of another company's stock, assets, and equity interests, then acquisition will have occurred (Hitt, Ireland & Hoskisson, 2014). Merger and acquisition translate to the consolidation of not only assets but also liabilities under one entity. Companies may merge or get involved in acquisition due to the three main reasons - gaining new talents, acquiring new technologies, and buying out of competitors (Buckley & Ghauri, 2002). Consequently, analyzing the companies that decided to merge with or acquire another company and those corporations that have remained on their own is imperative in understanding the concept of merger and acquisition and the strategies behind them. Thus, the current paper seeks to evaluate the strategy of Wal-Mart, a US-based multinational chain store, which led to the acquisition of Seiyu Group. The paper also attempts to justify the viability of the acquisition. In addition, it evaluates both Wal-Marts business-level and corporate-level strategies that it has employed internationally and suggests relevant recommendations for improvement. Further, the paper analyzes Crane and Co, a renowned papermaking corporation that operates solely within the United States and does not have a history of either mergers or acquisitions, and identifies a probable candidate that Crane and Co might contemplate to either merge with or acquire. Finally, the paper proposes one business-level strategy and one corporate-level strategy that Crane and Co can consider.
Wal-Mart Acquisition of Seiyu Group
Wal-Mart acquired Seiyu Group in 2002 for an estimated price of $ 84 million. It first acquired Seiyu by making it a subsidiary with only 6.1 % shares before later proceeding to acquire it fully in 2005 (Roberts & Berg, 2012). Seiyu Group is a Japanese-based group of chain stores, departmental stores, and shopping centers. Wal-Mart opted to acquire a business in a related industry to align with its business-level and corporate-level strategies (Buckley & Ghauri, 2002). Since the acquisition, Wal-Mart has expanded tremendously in the Japanese market, having established 22 new stores (Roberts & Berg, 2012). According to Banjo, a Japanese market analyst, Japan has become the second-largest consumer market in Asia, as there has been a significant growth of income for the low income citizens which rely on fixed pensions and allowances, which has consequently increased consumers disposable income (Moeller, Doujak & Stolla, 2008). Relatedly, the President and the CEO of Seiyu and Wal-Marts holdings in Japan Steve Dacus stated that in the nearest future, the Japanese market is likely to boom as he expects single-person households to steadily grow their income. This in turn will improve their purchasing power, which will eventually be to the advantage of the company (Hitt, Ireland & Hoskisson, 2014).
One of the strategies that pushed Wal-Mart into considering the acquisition of Seiyu Group was market penetration. Prior to the acquisition, Wal-Mart found it difficult to win the Japanese market as the competition was stiff from major Japanese retail stores such as Yamada Denki Company, Dalei Inc., and Takishimaya Company Ltd. Wal-Mart strategized to penetrate the Japanese market by considering the acquisition option (Buckley & Ghauri, 2002). The acquisition is evidently successful. Thus, in the first quarter sales, Wal-Mart Delis branch in Japan recorded a positive deviation of 2% without factoring in the second sales (Roberts & Berg, 2012). Similarly, the Japanese Ministry of Economy and Trade Industry backed up the indication of Wal-Marts success in Japan by reporting that Wal-Mart accounted for 2.5% of Japanese revenue collection on corporate taxes (Roberts & Berg, 2012). Additionally, Wal-Mart expounded its penetration strategy by introducing products that cater for the aged Japanese population. For instance, it came up with the freshly packaged meat called 298-Yen Bento that is set at affordable prices to target the old aged consumers who mostly rely on pension as a source of income (Roberts & Berg, 2012).
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Wal-Marts Corporate-Level Strategy
There are three types of corporate-level strategy that a firm can adopt, which include multidomestic strategy, global strategy, and transnational strategy (Buckley & Ghauri, 2002). Multidomestic strategy refers to an approach where a company can choose to focus on specific products per specific market segment in different parts of the world. This approach is applicable when a company has the ability to differentiate its products, or if it has a diversified range of products. On the other hand, the global strategy entails an approach whereby a company opts to promote one specific standardized product across the world. The approach suits a situation where the company's product is universally accepted and consumed. Lastly, transnational strategy refers to a combination of both the multidomestic and global strategies. The strategy is employed when a company has a diversified set of products that it can promote globally for different target markets as well as pick one product and promote it across the world.
Wal-Mart has adopted the transnational strategy, which appears to be the most appropriate for the corporation (Roberts & Berg, 2012). The strategy is primarily applicable because Wal-Mart deals with a range of products from groceries, electronics, to apparels to personal care products to furniture. Thus, Wal-Mart has selected universal products such as electronics and has promoted them globally. On the contrary, Wal-Mart has also adapted some particular products to the specific market segments, matching the products according to the culture preferences of the targeted segments. For instance, in the Japanese market, Wal-Mart has offered consumers products and services that are customized and are in line with their cultural beliefs (Roberts & Berg, 2012). In other words, Wal-Marts market coverage is wide enough to apply the transnational strategy.
Wal-Marts Business-Level Strategy
There are four business-level strategies that a company may adopt, namely cost leadership, differentiation, focused low cost, and focused differentiation, as well as the integration of both cost and differentiation strategies (Hitt, Ireland & Hoskisson, 2014).
Cost leadership strategy grants a company a competitive edge over its competitors by capturing a wider proportion of customers based on price. This strategy is applicable and efficient when the product or service is standardized and when the goods are generic and acceptable to many customers; in this case, offering lower prices becomes feasible. On the other hand, differentiation entails offering the customers the same product with unique characteristics instead of lowering the prices (Hitt, Ireland & Hoskisson, 2014). This strategy is applicable and efficient if the products offered are of high quality, have extensive features, display high creativity, innovation, image management, comprise advanced technological features, and if the company provides good customer service (Hitt, Ireland & Hoskisson, 2014). Further, in the focused low cost strategy, companies compete by selecting a target market where they could lower the cost of their products and services. In case of focused differentiation, a company selects a particular market segment to provide goods and services that are differentiated to outshine the competitors (Hitt, Ireland & Hoskisson, 2014).
From all the strategies mentioned above, cost leadership emerges as the most feasible strategy that Wal-Mart has adopted in its international operations (Buckley & Ghauri, 2002). Wal-Mart is capable of facilitating this strategy effectively since it has large economies of scale. In this respect, Wal-Mart has raised the bar high for the potential new entrants across the world in terms of preliminary capital needed to venture into the retail industry (Buckley & Ghauri, 2002). This has prompted the interested new entrants to evaluate their capacity before competing with Wal-Mart in the retail industry, as it will demand huge investment.
In addition, the company has set cost leadership as their core philosophy and principle at the international level as evident from their motto Always low Price. Always, which has granted the company a selling edge that pools more consumers as they always obtain goods at the most affordable prices (Moeller, Doujak & Stolla, 2008). In an economic perspective, Wal-Mart purchases goods in bulk as well as self-manufactured some of their goods at a lower cost per unit. According to a statistical study, Wal-Mart operates between 0.3% and 3 % cost differential, a rate that is lower than that of the competitors in all its value chain activities (Roberts & Berg, 2012). The bottom line of the strategy is to supply its customers with quality goods at affordable prices continuously, and this has made Wal-Mart an exemplary cost leader in the retail industry (Roberts & Berg, 2012).
Recommendations for Improvement
In relation to its transnational strategy, Wal-Mart can launch more online shopping opportunities to reach a wider market. Online shopping can also be extended through mergers and acquisitions, where Wal-Mart can either merge or acquire online shopping companies such as Amazon.com or Netflix.com. Such a step would be in line with Wal-Marts corporate-level and business-level strategies and improve its chances to increase the revenues internationally (Hitt, Ireland & Hoskisson, 2014). Although Wal-Mart has successfully managed to be the cost leader in the retail market, still it has room for improvement. First, it should narrow down its cost leadership strategy to a focused low cost strategy. This means that Wal-Mart has to identify specific market segments that it may focus on with its cost leadership strategy, especially in the emerging markets (Buckley & Ghauri, 2002).
Corporation Without any History of Mergers and Acquisition
Crane and Co is one of the biggest names in the paper-making industry in the United States. It is the leading banknote manufacturer, which hold patents for security features in the finished bank notes and manufactures the paper used for the currency (Moeller, Doujak & Stolla, 2008). The company also boasts of the lucrative contract of making currency paper for the American Treasury. The company does not operate outside the United States, but it imports raw materials from China, Japan, and Latvia. Apart from importing the raw materials, it also provides banknote paper for several other countries, including India, Saudi Arabia, and Sweden (Hitt, Ireland & Hoskisson, 2014). The company has diversified its product range and as per now; today, they deal with an array of services including office furnishes and environmental services as well services in the energy sector.
A Possible Profitable Candidate for Crane and Co
The Brazilian-based pulp and paper company Fibria Cellulose is a potential entity that Crane and Co can merge with. Over the years, Fibria has remained a competitive force company in the pulp and paper industry globally with an extensive market reach boosted by its subsidiaries in Beijing, China, Miami, Hungary, Hong-Kong, and Nyon in Switzerland. Fibrias primary products are the bleached eucalyptus kraft paper, which is used for producing stationary materials, cartons, manila papers as well as envelopes and passport materials (Buckley & Ghauri, 2002). In this respect, the company proves to be an ideal candidate that Crane and Co can acquire as it provides a diverse range of products that Crane and Co can capitalize on to improve its general performance. Crane and Co appears to be concentrating much on producing banknotes paper, hence narrowing its capacity. Moreover, much of Fibrias products are exported, therefore, this can grant Crane and Co an opportunity to promote and publicize its products in the international market (Moeller, Doujak & Stolla, 2008). As a local based company, Crane and Co revenue and stock prices can improve if it acquires a foreign company that operates in the same industry to diversify its products and services internationally.
Proposed Corporate-Level Strategy for Crane and Co
The fact that Crane and Co operates at the national level only limits its capacity as it forgoes numerous opportunities in the international market (Moeller, Doujak & Stolla, 2008). As suggested above, Fibria Cellulose is a perfect candidate for acquisition as it provides relevant tools that Crane and Co misses in the global market. Crane and Co should consider the global strategy at the corporate level to maximize its chances for success in the international market. The suggested strategy is based on the assumption that the type and range of products that Crane and Co has to offer so far is not diversified enough to employ other strategies; thus, the company will offer standardized products that will be acceptable for many customers in the international market.
Proposed Business-Level Strategy for Crane and Co
One of the applicable business-level strategies Crane and Co can adopt is differentiation. Since the company might contemplate operating internationally, it has to arm itself with a strategy to combat the intense competition in the global market. Moreover, competition from another currency paper making companies is inevitable (Hitt, Ireland & Hoskisson, 2014). As such, for the company to remain relevant in the market and to offer the best services, it must look beyond price wars or cost leadership strategies. Differentiation is all about maintaining or improving the unique features of the products, and this should be the primary focus in winning more customers as well as keeping the loyal ones. Maintaining and improving the unique characteristics of the products calls for advancement in technology coupled with the promotion of innovation by the company (Buckley & Ghauri, 2002). Additionally, differentiation also covers on product and service diversification. For instance, in the move to acquire Fibria Cellulose, the company will shift from primarily producing currency materials within the US to supplying both currency, stationery and cartons internationally. Consequently, Crane and Co revenue and capacity building is likely to improve with respect to this proposal (Hitt, Ireland & Hoskisson, 2014).
Concisely, mergers and acquisitions make it possible for corporations to grow at a faster rate. Buying out competitors, adjusting to the market demands and future trends are some of the reasons behind the acquisition or merger, as evidenced from the Wal-Mart example. Wal-Mart realized that it was easier to penetrate the Japanese market after merging with the local-based Japanese chain store Seiyu Group. The acquisition has not only benefited Wal-Mart but also the Japanese economy and trading industry in particular. The cost leadership strategy at the business level and the transnational strategy at the corporate level help Wal-Mart to gain a competitive advantage in the global market. Corporations may operate at the local level only and still remain successful, as seen by the example of Crane and Co. However, for such corporations to remain relevant in the market, they need to consider going international. Thus, once the company has stepped in the international market, it ought to adopt the differentiation strategy at a business-level and the global strategy at the corporate- level to improve its competitive edge in the market.