Merger,Acquisition, and International Strategies
Merger,Acquisition, and International Strategies
Businessesapply different strategies in order to enter new markets and enhancetheir competitiveness. The merger and acquisition are the most commontypes of approach that modern organizations use to penetrate newmarkets. The application of the two strategies is attributed to thefact that working with an organization that has operated in a givenmarket for a long time makes it easy to understand the trends andchallenges that a business might face (Gupta, 2012). This paper willprovide the analysis of the merger between the Coca-Cola Company andSABMiller. The paper will also analyze the Fee Brother Company andexplain why High Performance Beverage can be a suitable target for asuccessful merger.
TheCoca-Cola Company and its Merger with SABMiller, Plc
Themerger between the Coca-Cola Company and SABMiller was intended tohelp the beverage enterprise penetrate the African market with ease.The negotiations for this merger started in May 2014, where theCoca-Cola was expected to acquire about 40 % of SABMiller’s stake(Gauntlett, 2016). The successful completion of the merger helped theCoca-Cola penetrate about 12 African countries. The new markets thatthe Coca-Cola managed to reach through this transaction account forabout 40 % of all annual sales that the company makes in thecontinent of Africa.
Theobjective of the merger was to increase the Coca-Cola’s marketshare in Africa. There are three factors indicating that the mergerwas a wise decision for the Coca-Cola Company. First, Africa has afragmented market where the majority of the citizens live in therural areas (Ntim, 2012). A decision to merge with a company that hasstudied and penetrated the market was the easiest way through whichthe Coca-Cola could reach over 12 countries within a single financialyear and start making returns within the shortest time possible.
Secondly,the two companies operate in the beverage industry, but they offerdifferent brands in the market. For example, SABMiller has beenmanufacturing and bottling several beer brands (such as CastleLarger) besides the production of soft drinks (Gauntlett, 2016).Therefore, the merger provided the Coca-Cola with an opportunity todiversify range of products that it sells in the African nations. Inaddition, merging with a company that manufacture different productswas an opportunity for the Coca-Cola to learn about the bear marketin African without engaging in expensive research and developmentprojects.
Third,the merger was a suitable strategy that the two companies could useto enhance efficiency and reduce redundancy. SABMiller offeredseveral services (such as bottling) to the Coca-Cola prior to themerger, which implies that the companies could avoid redundancies bymerging their bottling operations, instead of working independently(Malik & Anuar, 2012). For example, the two firms reduced thecost of managing each of the units independently. Therefore, themerger was a wise choice for the Coca-Cola.
TheAnalysis of a Local Company: Fee Brothers
TheFee Brothers Company is a beverage company that is located in NewYork. Some of the products offered by the Fee Brothers includecocktail mixes, iced cappuccino, flavored syrups, and bitters. Thecompany’s operations are limited within the U.S. market. Inaddition, the Fee Brothers have not engaged in merger transactionssince its foundation. This paper recommends that the Fee Brothershould merge with the High Performance Beverages (HPB) Company. HPPis a beverage company that has managed to establish operations inemerging markets, such as China. HPB also operates in the beverageindustry, which makes a suitable candidate for a merger with the FeeBrother. There are three reasons that justify the merger between FeeBrother and the HPB. First, Fee Brother will reap the benefit ofsynergy by merging with a company that has operations in the U.S.market as well as foreign countries (Malik & Anuar, 2012). Thisbenefit is associated with a decrease in the cost of operation, anincrease in efficiency, and the ability to penetrate new marketwithin a short time.
Secondly,HPB will be able to diversify in terms of geographical coverage andthe range of products offered in the market (Malik & Anuar,2012). For example, the success of the merger will allow HPB to startproducing and selling energy products that are currently offered bythe target company. In addition, the merger will facilitategeographical diversification by allowing Fee Brothers to accessforeign markets (such as China and Canada) once the transaction iscompleted. The ability to access more markets will also help FeeBrothers to increase its sales and profitability. The increase insales can be attributed to the expansion of the supply chain. FeeBrothers will be able to utilize the supply chain that is currentlyused by HBP to reach more customers.
Businessand Corporate Level Strategies
Differentiationis the main business level strategy used by the Coca-Cola to enhanceits competitive advantage in the international market. The concept ofdifferentiation is achieved when an organization produces goods thathave unique features that are not available in products that areoffered by competitors. For example, the Coca-Cola produce carbonatedsoft drinks that are rarely manufactured by other beverage companies(Baah & Bohaker, 2015). The soft selling strategy is adifferentiation approach that has helped the Coca-Cola take advantageof its corporate image as an innovative firm. Additionally, theCoca-Cola has managed to communicate its symbol of “fun and joy”to its target customers. The company has benefited from customerloyalty due to its capacity to offer attributes that they cannot findin other beverages. About 20 % of the total funds set aside foradvertisement each year are spent on the projects that aim to helpthe Coca-Cola Company communicate and maintain the differentiationstrategy (Baah & Bohaker, 2015).
TheCoca-Cola applies forward vertical integration as its major corporatestrategy in order to move closer to its target customers. The forwardvertical integration is a strategy that involves the expansion of thebusiness activities with the objective of controlling the supply aswell as the distribution of the firm’s products directly (Zhang,2013). In the case of the Coca-Cola, the company has been mergingwith its initial bottling firms. The objective of the forwardvertical integration approach has been to enhance the company’scontrol over the level of quality and efficiency in delivery of thebottling services. For example, SABMiller was one of the bottlingservice providers for the Coca-Cola. However, the recent mergerbetween the two companies implies that the Coca-Cola will take fullcontrol of the bottling services in Africa.
Thispaper recommends that the Coca-Cola should invest in market researchin order to identify specific attributes that can enhancedifferentiation in various market segments. This approach will helpthe company avoid assuming that the differentiation attributes thathave resulted in customer loyalty in the U.S. will automatically workin other market segments. Although the vertical integration strategyhas helped the company reduce the cost, monitor the quality, andefficiency, it might create a negative perception in the developingcountries. The takeover of other companies that have been operatingin the African countries could be perceived as an aggressive approachthat is intended to destroy the local firms. To this end, theCoca-Cola should adopt an alternative approach, such as theestablishment of a strategic alliance with the local firms. Thisapproach will strengthen the local firms and help the Coca-Colaachieve the goal of penetrating the emerging markets.
FeeBrothers Company can combine business and corporate level strategiesto enhance its competitive advantage. Cost leadership is among themost effective business-level strategies that Fee Brothers can use tocompete with other players in the beverage industry. Thecost-leadership approach involves the use of low price as a strategyto attract customers (Zhang, 2013). The Fee Brothers Company canmanage to offer products in the market at the lowest price byproducing them at the least possible cost. The importance of loweringthe cost of production is to ensure that the company will still beable to make a reasonable margin, even after selling them at a cheapprice. The cost of production can be reduced using three strategies.First, the company can choose to contain the overhead as well as theoverall cost of production. Secondly, the enterprise can enhanceefficiency in all operations. The company will benefit from thisstrategy by selling its products at a lower price than itscompetitors.
Thispaper also recommends that the Fee Brothers should adopt thestrategic alliance as a corporate-level plan for enhancing thecompetitive advantage. The strategic alliance plan involves theestablishment of certain agreements between companies that intend topursue a given set of objectives (Zhang, 2013). The Fee Brothers willbenefit from a strategic alliance in two ways. First, the companywill benefit from an immediate increase in the brand awareness in thenew markets. It will be easier for the corporation to enhance thepopularity of its brand in the foreign markets by establishingalliances with other firms that have been operating in those segmentsthan developing its own distribution channels. Secondly, Fee Brotherswill be able to offer supplementary services without reducing itsfocus the current range of products. This approach will allow thecorporation to address a large number of the needs of its customers,thus increasing its competitiveness as well as profitability.
Organizationsuse a combination of corporate and business-level strategies toenhance their competitive advantage. The Coca-Cola is a multinationalcorporation that was started in the U.S., but it has managed toinvest in the foreign markets. The Coca-Cola applies differentiationand vertical integration as the main strategies to enhance itscompetitiveness. For example, a merger with SABMiller was intended togive the Coca-Cola the ability to take control over the bottlingservices in about 12 countries. Although the Fee Brothers beveragecompany that is located in New York has not managed to penetrate theinternational market, a combination of corporate and business-levelstrategies can help it expand the current market share. Some of themost effective strategies include strategic alliance andcost-leadership.
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