Optimizing market entry mode is a classic topic in the field of international business research. Cross-border acquisition and international strategic alliances are two increasingly popular choices, and their advantages and disadvantages are equally obvious and overlap. The choice of the scheme depends largely on the internal and external conditions of the enterprise. Occasionally, the alliance will be selected first, and then the hidden target will be set for future comprehensive acquisition. Through the study of 1993, which caused huge losses to BMW and was considered as a failure, the risks involved in transnational acquisition were explained.
On the other hand, there are many differences between the two schemes. The risk of strategic alliance is that partners are unwilling to share knowledge and resources with other enterprises, thus reducing the possibility of learning knowledge and technology. At the same time, the partnership may increase the risk of revealing trade secrets by absorbing the knowledge of other enterprises. Knowledge input enterprises often make wrong judgments on the behavior of partner enterprises, which leads to the risk of strategic decision-making and accelerates the failure of the alliance. Acquisition gives enterprises more rights to control foreign enterprises, including their assets, knowledge and strategic direction, thus reducing contingent risks in the alliance.
Nevertheless, the acquisition also bears higher investment risk, especially compared with the alliance where many partners share the risk. If the acquirer's purpose is only to acquire the assets, technology and market leadership of the acquired enterprise, then the acquisition is more expensive. In countries with inefficient major markets, this risk will be greater, and cost overruns or losses will occur earlier.
If the acquisition cost is higher than expected, the obligation to the acquired foreign enterprise resources may be higher than expected. In domestic acquisitions, the high acquisition cost is also controversial, especially when the organizational composition of the acquirer and the target enterprise is inconsistent. In a word, there will always be advantages and risks between international strategic alliances and cross-border acquisition.
Second, the choice of two modes
The risk level related to cross-border acquisition and strategic alliance can change according to the target enterprise or its environment. Different cultures of different countries and enterprises are an important environmental factor. Significant cultural differences will reduce the organizational coordination between the merged enterprises, thus increasing the cost of mergers and acquisitions. Therefore, in the case of significant cultural differences between enterprises, the strategic alliance model is more desirable.
The business strategy of an enterprise will also affect the choice of expansion mode. If a foreign market has a particularly important influence on the decision-making of enterprises, for example, because the country where a potential target enterprise is located is ahead in some related technologies, enterprises entering the market will be more inclined to acquire rather than alliance, so as to share technical secrets with the partnership enterprises to a greater extent.
The strength of the acquirer also affects the risk coefficient of scheme implementation. Research shows that the strength of an enterprise is directly proportional to the success rate of acquisition. Strength also greatly reduces the cost of mergers and acquisitions.
The characteristics of the target enterprise have also become one of the factors that affect the acquisition risk. If the purpose of acquisition is only the specific assets held by the target enterprise (such as specific place resources), rather than the assets owned by the enterprise, then the acquiring enterprise will have to divest part of the business of the acquired enterprise, and the existence of inseparable assets of the enterprise and the cost of divesting assets are the main reasons why enterprises prefer to choose alliances rather than acquisitions.
On the other hand, if enterprises are looking for resources that a single enterprise cannot obtain, the strategic alliance model is obviously a better choice.
Third, the BMW-Rover case.
BMW, a noble among German automobile manufacturers, is one of the most clearly and accurately positioned luxury cars in the world. BMW acquired Rover Motor Company in 1994 for 126 billion dollars. At that time, the stock market was obviously in turmoil because of this transaction. BMW's share price rose by 8.23% on the day the acquisition was announced, and then they felt the benefits of more acquisitions. In the whole automobile industry, BMW and Rover are not considered strong enough to survive independently. This acquisition adds an important new product to BMW's production line, that is, the sport utility vehicle (SUV) which has been very popular in the American market. At the same time, there are also small cars that BMW has been lacking, which is of great help to sales.
Although BMW has to bear heavy debts for this acquisition, there are still many reasons why it tends to acquire and abandon the alliance: First, the global market situation in which the demand for automobile manufacturing exceeds the supply makes the unified control of internationalization particularly important; Moreover, Rover and Honda had already implemented a strategic alliance at that time, and it seemed very difficult to integrate these three completely different automobile companies into a strategic alliance. In addition, the cultural differences between Britain and Germany are considered negligible, and BMW has rich experience in transnational cooperation, so the expected acquisition cost is not high.
However, the envisaged benefits have not been realized as scheduled. Although it has paid $5.4 billion for Rover in six years, BMW finally made up its mind to get rid of this trouble in early 2000. In view of the lack of experience in large-scale mergers and acquisitions, and the relatively low pressure of environmental competition, BMW chose to let Rover be independent by appointing representatives at that time, but most of Rover's technology was inherited from its former owner Honda, which was incompatible with BMW's technology. In addition, the quality problem of Land Rover is more serious than expected. During the period of 1996, Rover ranked 37th in the quality evaluation of American Automobile Consumers magazine, which was almost the last ranking of consumers' satisfaction with automobile quality. The efficiency of many rover processing plants is also lower than the standard of this industry, and the salary level of employees is one-third of that of the whole British industry. In the end, these problems led to BMW's firm belief in intervening in Rover's operation, but the focus was still on technology, while making a clear market strategy for Rover was not taken seriously.
These substantial defects probably led to the decline of Rover. At the beginning of 2000, Rover's market share in the UK dropped from 1993 to 13.4% to 5%. When the loss expanded to 1998 dollars, the CEO of BMW at that time, the leader who pushed for the acquisition at that time, had to step down under pressure, and other senior leaders also fell. External analysts pointed out that the turnover and heavy financial losses have seriously weakened BMW and even threatened to be taken over by other companies.
Even if the cultural differences between Britain and Germany can't be the hand of events, the style differences between British and German managers also present a complicated situation. For decades, Britain has been Germany's deadly enemy in the automobile production industry, and the rigor that the Germans have always advocated is almost harsh, which makes it difficult for the British to adapt. Therefore, the pace of interactive learning and communication between enterprises is always difficult.
Of course, it is not easy to comprehensively evaluate the reasons for BMW's failure in the Rover incident. The above is just a rational discussion and analysis of some reasons for failure. One of the most noteworthy is the lack of experience in large-scale acquisitions. Obviously, BMW has its own unique technical strength and perfect market strategy, but these can't make it cope with the contract cooperation with other enterprises, which eventually leads to failure. Rover's quality and technical problems were discovered slowly and failed to be actively controlled in the first few years after the acquisition, which is conclusive evidence that BMW lacks experience in cross-border mergers and acquisitions.
Although some of Rover's production lines overlap with BMW's, the latter is still reluctant to separate and reorganize Rover's business. Finally, when BMW had to divest some of Rover's assets, the Land Rover brand and its physical assets were sold to Ford Motor Company for $3 billion. Under the pressure of the British government, the traditional famous brand Rover was only sold at the price of 10. BMW still retains the brand of Mini compact car and related production equipment.
In hindsight, BMW may have a better chance to achieve its goal of expanding into new markets through alliances rather than acquisitions. At least BMW's original sports car and Rover brand have the same technology in this respect, and the alliance model may be more suitable for developing and enjoying technology.