Scaling Up

STRATEGIC ALLIANCES

Strategic alliances are agreements between two or more independent companies to cooperate in the manufacturing, development, or sale of products and services or other business objectives. Strategic alliances take the form of Joint Venture, Equity Strategic Alliance, and Non-equity Strategic Alliances.

BUY AND BUILD

The buy and build strategy is when a company expands its operations by acquiring a platform company with a developed expertise that it can then build out. When a business requires growth and expansion, there are several possibilities to consider. The company can develop its internal capabilities that will drive the expansion, or the entity can buy a business with an already developed expertise in that area of specialisation and build it out further. The Buy and Build strategy, therefore, adopts the latter option. The effect can create great value since the operations of several smaller firms combine to add value to the new firm. However, the success of the combination heavily depends on the platform company, which may result in destroying value if the strategy is not properly executed.

FORWARD INTEGRATION

Forward integration is a form of vertical integration in which a company moves forward on its production path towards the distribution of its products or services. Essentially, a company undertakes forward integration by acquiring or merging with business entities that were its customers while still maintaining control over its initial business.

HORIZONTAL ACQUISITION

A horizontal acquisition, also known as a horizontal merger or horizontal integration, is a strategy that involves one or more organisations taking over or merging with another that operates in the same industry and is in the same stage of production. When the integration occurs, it’s generally to enable formerly competitive companies to form either a single-rule organisation (a monopoly) or an organisation where a few firms exercise power (an oligopoly). Therefore, when horizontal acquisitions occur, they form horizontal monopolies and horizontal oligopolies.

BROWNFIELD INVESTMENT 

Brownfield investment (BI) is a type of foreign direct investment (FDI) where a company invests in an existing facility to start its operations. In other words, a brownfield investment is the lease or purchase of a pre-existing facility in a foreign country. Example include Vodafone acquiring a stake in India-based Hutchison Essar for $10.9bn and Tata Motors acquired Jaguar Land Rover for $2.3bn.

BACKWARD INTEGRATION

Backward integration is a process in which a company acquires or merges with other businesses that supply raw materials needed in the production of the finished product. Businesses pursue backward integration with the expectation that the process will result in cost savings, increased revenues, and improved efficiency in the production process. Companies also use backward integration as a way of gaining competitive advantage and creating barriers to entry to new industry entrants.