MANAGING STRATEGY 11260

UNIVERSITY OF WALES

KCB ID: 10533

MODULE NAME: MARKETING STRATEGY

SUBMISSION DATE: 25TH MARCH, 2009

NAME OF MODULE LEADER: MR. KEVIN O'HARA

TABLE OF CONTENTS

INTRODUCTION………………………………………………………………………..........3

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PART 1

MERGERS AND ACQUISITION………………………………………………………........4

MERGERS……………………………………………………………………………...…......4

ACQUISITION………………………………………………………………………...….......4

DIVESTMENT……………………………………………………………………………......5

DELL MERGERS AND ACQUISITIONS AFTER 2002........................................................6

PART 2

STRATEGIC ALLIANCE………………………………………………………………….....7

JOINT VENTURES…………………………………………………………………...............7

MAJOR JOINT VENTURE AND STRATEGIC ALLIANCE OF DELL...............................8

PANASONIC AND ITS MAJOR MERGERS AND ACQUISITIONS AFTER 2002..........8

JOINT VENTURE AND STRATEGIC ALLIANCE OF PANASONIC AFTER 2002.........9

PART 3

COMPETITION- PORTERS FIVE FORCE ANALYSIS.....................................................11

RECOMMENDATION..........................................................................................................12

CONCLUSION.......................................................................................................................12

REFERENCES

INTRODUCTION

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Mergers and acquisitions are becoming quite common in the business world. We hear news

like RBS bank has merged with NatWest bank or RBS has acquired Coutts bank of England.

These are becoming quite common because of the uncertain future of business. They were hit

by the largest recession in the history of business.

Many businesses have become bankrupt. The unemployment levels in all the countries have

reached unprecedented levels. The treats from external environment is common for business

but at this magnitude was not expected. But the most interesting fact is that still lot f

companies like Wal-Mart, McDonalds, Primark have sustained this difficult times and not

only that they have actually profited from this situation.

This report is effort to understand how DELL and Panasonic have performed in this tough

time and also to see the strategic options they have adopted in the last 10 years to compact

this situations. We will be looking to various aspects like the various mergers, acquisitions,

joint ventures and alliance this firms have adopted and also we will trying to analyse one

major external force that have affected this firms.

PART 1

MERGERS AND ACQUISITIONS

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MERGERS

Merger will help the company to achieve more efficiency in terms of scale and productivity. A merger is a process in which more than two corporations join together to form a single business. Companies merge together because their combined strength can generate more rewards for the organisation (Sherman A.J and Hart A.M, 2006).

TYPES OF MERGERS

Depending up on the types of business structure mergers can be divided in to different types. It helps to distinguish the relationship between the two merging companies (Colye B, 2000).

1. Horizontal mergerHorizontal merger happens between two companies that produces same kind of product and services. The main advantage of horizontal merger is that it creates better economies of scale for organisations. The merger between Daimler – Benz and Chrysler is an example for horizontal merger.

2. Vertical mergerVertical merger happens between two different companies that produce totally different products and services. They join together to produce a specific product .This is often done to decrease the dependency with the supplier. A car manufacturer merging with a tyre manufacturer is a good example of vertical merger.

3. Market extension mergerThis merger is intended to gain more market capitalization for the companies. It happens between two companies that sell the same product.

4. Product extension mergerThis merger happens between two companies that have different product lines but have got related products the speciality of this merger is that the two companies are operated in the same market (Stahl G.Kand Mendenhall M.E, 2005).

5. ConglomerateThis kind of merger occurs when a large company owns a controlling stake in more than one smaller company. This is done to diversify the business and to reduce the cost

ACQUISITIONS

Acquisition happens when one firm purchases another firm but there is no exchange of stocks as it happens in mergers. In acquisition a company can buy another company with cash, stock or with the combination of stocks and cash (Gole W.J and Morris J M, 2007).

ADVANTAGES OR MERGERS AND ACQUISITION

Mergers and acquisition will help a company to enter in to a new horizon business.

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It will help the companies to create a new market for them. It will help them to acquire more customers at different locations It will give them competitive advantages over other competitors (Porter, 2008 ) It will help the company to acquire the new abilities that they were lacking. One of the main advantages that merger and acquisitions will bring in to a company

is that it will help them to tap tacit knowledge It will help to increase the product line of the business It will help the companies to acquire the new distribution channels It will help them to gain technical knowledge It will create more flexibility for the business It will act as a strategic tool for the business It will help them to increase the sales It will help them to reduce the total cost. The most significant advantages of mergers and acquisition is that it will provide

extra infrastructure and cash for the business to operate

WHY MERGER AND ACQUISITION FAIL?

The main reason why merger and acquisition fail is because of the difference in the corporate culture of the two different companies. The inability to cope up with the cultural difference with the other organisations will prove to be fatal. Following the merger many companies try to cut the cost this will result in reduced revenue and ultimately it will reduce the profit. Another major reason why merger and acquisition fail is because it will be unable to create value for the shareholder.

DIVESTMENTS

Divestment is a process of selling the company’s assets or part of its assets .It is normally a financial decision by the company (Povaly S, 2007). Normally divestment happens when there is a change in the corporate strategy of the firm .This is done by the strategist of the firm because they feel that there is more need to focus on the core aspect of the business.

DELL

Dell is a multinational company deals with computers, its hardware and software and also its products and services. During 1980’s and 1990’s dell grew as the largest producer of the PC’s. Now Dell is at the third position in production and sales of the computer. The different range of products includes PCs, network switches, data storage devices, computer peripherals and software. Some electronic equipment are also produced by Dell such as cameras, HDTVs, MP3 players, cameras and others.

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DELL AND ITS MAJOR MERGERS AND ACQUISITIONS AFTER 2002

By 2010, Dell has acquired more than 10 companies and has two major divestments but it has not officially revealed its financial details regarding its major mergers and acquisitions. In 2009, it had major acquisition which gave them an opportunity to step into IT service field by acquiring Perot Systems. Dell officially announced in September 2009, that it has decided to acquire Perot Systems and completed this acquisition by December 2009. Perot systems is US based company that provides IT services and it was founded in 1988by Ross Perot. It also provides services in Dell acquired Perot Systems by paying $3.9 billion. This acquisition will enable dell to reach its hand into the It service and support marketing business and it will certainly help Dell to expand its market into the IT service particularly healthcare and government sectors, as it focus on service sector too. It made its move towards the IT service sector by hiring Stephen Schuckenbrock in 2007 but the latest deal with Perot is much stronger in this respective field. Dell had revenue of $5.1billion from service industry alone and Perot had $2.6billion from their business. So, together they have annual revenue of $8 billion.

Dell decided to acquire Alienware in 2002 but the decision was pending till 2006, when it decided to purchase the company. Alienware is an US based company which is a computer- desktop manufacturer and the financial details regarding this acquisition was undisclosed. This acquisition helped Dell to introduce new products like Advanced Micro Devices, Microprocessors; its previous CPUs were supported by Intell. It further helps Dell to expand its markets using the advanced technology of Alienware and it helps them to stand own their own feet without depending on other companies for desktop manufacturing technology.

Diversification of two companies was made in 2000 and 2008 to sell the manufactured parts to other companies. These were not so significant as far as Dell is concerned. Dell divested them in order to focus on their main business.

Thus, when we critically analyse the major mergers and acquisitions of Dell inc. , it is clear that these M&A will definitely help them to enter into the IT service industry with help of Perot Systems whjich would give them a high revenue from the service sector alone. By the acquisition of Alienware, Dell will be able to stand on its own feet by developing cutting edge technology. These acquisitions have currently proved to be effective.

PART 2

STRATEGIC ALLIANCE

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As the word suggests it is the alliance between two companies to share resources to fulfil specific task or project this is normally a temporary adjustment. Strategic alliance normally happens when two companies agree to share their product distribution network and sometime their manufacturing units (Reuer JJ, 2004). Strategic alliance helps in sharing the expenses and reducing the risk. This process normally involves the transfer of technology. It will help the two companies to concentrate on their capabilities, so as to develop the competence to explore in to new horizons of business. Strategic alliance is formed locally as well as globally. At the global stage, companies form working partnerships between two firms operating in two countries.

JOINT VENTURE

One of the major difference between strategic alliance and joint venture is that joint venture is legally binding. It is normally done to improve the capabilities on resources to develop the competence and to explore the new horizons of business .It is also normally done for a single business project joint venture helps in reducing the risk in entering into new markets because it uses the assets of a local business (Hewitt I, 2005). If the firm has very low knowledge about the local market and legal environment then, it is always better to have a joint venture in place. Joint venture will increase the borrowing power of the company and also it will increase their goodwill. It is also a strategic decision because many foreign countries do not allow business to have direct investment. So, the start to join venture will help the diversification portfolio of the company.

MAJOR JOINT VENTURE AND STRATEGIC ALLIANCE OF DELL

The Dell Corporation started a strategic partnership with EMC in 2001. They jointly design the products and also support such as fiber channel and ISCSI storage area networks. This increases the selling of replication, recovery, backup and archiving software of OEM versions. In late 2007 Dell expanded a program called Value Added Resellers (VAR). In this it is a joint venture with the other companies that enable them to use the dell logo for the marketing of their products. It was announced through their website. The main member in this program is now ConnectU.

Dell Computer Corporation and Dell Financial Services L.P together made a joint venture with CIT Group Inc. in 2009. This joint venture will help Dell in providing various kinds of financial services to its customers. The joint venture with CIT has given revenue of $3 billion as it celebrated its third anniversary in 2000.CIT alone gives support for Dell in financing certain transaction with its customers and DFS. Thus, DFS helps Dell immensely for customer financing transaction through lease financing or loan. This joint venture that started in2000, was agreed to run till October 2005.

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One of the major strategic alliances that Dell announced was with TallyDell India which is India’s biggest application software company in 2008. The main purpose of this strategic alliance was to accelerate the earning capacity of their channel partners. Formally both these companies announced that the joint venture was aimed at creating more revenue stability for IT resellers. That means the new Dell Vostro laptop will be powered by the new Tally.ERP9. It will be free with Dell Vostro in the initial supscription period. This Dell Vostro Systems will be made available to its customers only through Dell’s partner networks or through direct sale. As mentioned above the IT Resellers can enter into this program by having contract with Dell and Tally. These partners can earn the quarter on quarter revenue.

Dell officially announced five-year extension of its global alliance with EMC to ensure the full swing of its network storage solutions for all the firms that are small and large. It is multi-billion dollar strategic alliance. Through this strategic alliance they are able to support the storage systems and services to all its customers worldwide. According to IDC, this alliance is ranked as one among the top ten disk storage system vendor in 2000. As per the official record, it has send more than 34,000 Dell EMC networked storage system to more than 10,000 customers all over the world.

Thus, these joint venture and strategic alliance of dell with world’s leading firms will give them a chance to expand their business horizon. It will give them new advanced technologies too. As these joint ventures and alliance of dell are running successfully, Dell will be able to compete with its strong competitors at the global level and will uphold its reputed brand name.

PANASONIC

The headquarters of Panasonic Corporation is at Japan. It is a multinational firm and started in 1918 as Matsushita Electric Industrial Co. They also provide home renovation services and non-electronic products other than electronic products. The company changes the name in October 2008. By 2003, the company put the brand name as Panasonic.

PANASONIC AND ITS MAJOR MERGERS AND ACQUISITIONS AFTER 2002

As far as Panasonic is concerned there is a long list of 57 acquisitions, 33 stakes and 62 divestitures. As mentioned above the Panasonic started as an electrical company called as Matsushita Electric Industrial Corporation. The main acquisitions and merges starts from early 1982. The main acquisitions and mergers are given below.

One of the major mergers of Panasonic is its merger with Sanyo in 2008. These two well-known Japanese based electronic companies merged together forming annual sales which would go more than 111.5 billion. The merger was completed by the end of 2008. This merger expected to make the smaller Sanyo that was in pending for years, a fully owned subsidiary of Panasonic. Initially, Sanyo decided to sell a share of 3.07 billion combining

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three of its shareholders Daiwa Securities, Goldman Sachs and Sumitomo Mitsui Banking. Panasonic is attracted by the green innovations of Sanyo like solar panels and batteries. This would enable Panasonic to have its hand on the huge growing market of hybrid car. So, it will give Panasonic access to highly rated technologies of Sanyo. This merger is currently running without any problems, making a huge profit.

Panasonic also agreed to absorb Panasonic Battery Electrode Co., Ltd. Which is the Panasonic’s wholly owned consolidated subsidiary. The merger is anticipated to be in effect in the first quarter of 2010. The main aim of this merger is to accelerate the energy business of Panasonic and also to stimulate the cost and product competitiveness. So the internal division of the corporation will aim at effective management of the energy business which is its key business.

Thus, these mergers and acquisitions will give Panasonic a cutting edge technology. The merger with Sanyo will give Panasonic to enter into the green energy business which is so fast growing field.

JOINT VENTURE AND STRATEGIC ALLIANCE OF PANASONIC AFTER 2002

Panasonic Corporation and Toshiba Corporation declared an agreement on share transfer and by this Toshiba will acquire Panasonic’s shares in Toshiba Mastsushita Display Technology Co Ltd. (TMD) in 2009. This joint venture would enable them to design and sell Liquid Crystal Display and Organic Light Emitting Displays. Once the share transfer is completed the TMD will become a fully owned subsidiary of Toshiba. The present name after this program is Toshiba MOBILE Display Co., Ltd. It owns 60% of stake in this joint venture and will buy the remaining 40% from Panasonic. This would enable Toshiba to take ultimate decision and promote the restructuring of TMD’s business.

In 2009 Toyota and Panasonic announced Joint Venture for the production of hybrid batteries for hybrid cars. By this joint venture Panasonic will have a share of 40% and Toyota will have 60%. It will develop Nickel- metal hydride batteries for using in Prius and other hybrid cars. It is expected that even though the sale of hybrid cars are falling, it will back on track since we cannot avoid the environment problems and this joint venture will also stimulate this business. They are planning to produce 800,000 battery packs for hybrid cars and vehicles. It sold 429,000 hybrid cars in 2009 and is aiming at selling 1 million per year.

Panasonic and Tracewell System a world’s leading electronic packaging manufacturer a US based company have formed strategic alliance to share the market for integrated aircraft maintenance solutions for the US military. This alliance will provide support for managing digital Technical Orders. It will be a mile stone in the history of Panasonic as it is able to step into the sustainable world economies.

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Hence, all these joint ventures and strategic alliance will help Panasonic to have advanced technologies so as to compete in the market. It will help them to expand their empire and to produce latest advanced technologies in the world market. In the case of Panasonic all this ventures and alliances have proved to be successful.

PART 3

Macro forces determines whether the business become success or failure. Last three years

where not so good for business in total. If we consider UK for example it has been affected

by the largest recession in its history. In the ever changing business situation there are lot of

factors that affect business largely Drucker P (2005). Political, Legal, Social, Cultural,

Economic and Technological environments are the main forces that affect the business in

general. Any one of them or a mixture of all this environments if carefully not analysed can

be proved fatal for the organisations future. The organisations need to plan in advance to

compact the treats of this environment.

Dell and Panasonic have millions of dollars in the last 3 years because of recession.

Recession and economic downthrown are elements of economic environment. Without any

doubt this was one of the major problems that have affected both dell and Panasonic in the

past 2 years and even at present. Panasonic is not so affected as Dell got affected this is

because of the fact that dell operates in countries like UK and US were recession has affected

the most.

Other than there are also other major problems that have affected both the firms, one of them

is competition (Porter M 2008),. Dell portfolio is comparatively lesser compared to

Panasonic, they are more concentrated on the PC business and the fact is that Panasonic

generates more sales in PC business when compared to Dell. Panasonic market capitalization

is mainly in Asian countries. When we try to analyse an external treat both this companies are

facing we find that Panasonic is the biggest treat to Dell in PC business. Panasonic sales

compared to rivals in PC business are more than of HP and Dell. Panasonic has generated

most of it sales from the rugged line (Traditional). They generated 30 per cent from there

sales from a product which act as replacement for desktop PC also called as the semi rugged

line and the remaining sales is generated from a business models that includes the laptops.

This sale is due to their large market capitalisation on the Asian areas which has got a large

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population. Panasonic is one of the most cost effective companies compared to Dell. They

want to grow their business to achieve the 1 billion dollar margin by 2010.

Now we try to analysis the competitor environment of both Dell and Panasonic using Porters

5 force model. The model will help as to understand how these firms are affected by

completion and they can face with creating a better strategic approach towards this problem

(Porter M 2008).

COMPETITION- PORTERS FIVE FORCE ANALYSIS

Porter feels that the most prominent treat the organisation have to face from the external

environment is completion. He wrote a series of book relating to completion starting with

‘what is strategy’, a paper published in Harvard review at 1980. He has identified five major

forces that affect companies in terms of competition. He has always emphasised the fact that

the sole purpose of business is to create value and to create value the business have to

products that the customer wants with quality and efficiency. To be competitive in such a

business situation the businesses have to a differentiation strategy in place. He points out 5

forces that affect business. The one is the treat the business have to face from the existing

competitors. This is most important treat the business have to face especially in technological

business (Porter M 2008).

TREATS FROM EXISTING COMPETITIORS

In case of dell and Panasonic the treat from the existing competitors is very high.

They had to face stiff completion from HP, COMPAQ and LENOVA at a continues

basis. They also had to face stiff completion in domestic markets especially from the

Chinese market where cheap products are available and to leave such a domestic

market like china is not good for these companies also on the same time.

TREATS FROM SUBSTITUTE PRODUCTS

The treats from substitute are medium but not low, this due to the fact that the

distance from PC and mobile phone are decreasing. That means that both this

companies have to face competition from NOKIA and APPLE in the near future.

BARGANING POWER OF THE CUSTOMERS

The customers bargaining power is very high as they have option of choosing the

brand they want. Only differentiation and creating ore brand loyalty can stop this

treat.

BARGANING POWER OF SUPPLIERS

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This is also very high as this companies buy majority there parts from INTEL, AMD

and windows (Microsoft). This treat has made pioneer in PC industry IBM to sell its

division to Lenovo.

TREATS FROM NEW COMPETITORS

In a technological business this treat is always high. Any low profile company can

become high profile at any time. Especially in PC business this companies buy parts

from INTEL and AMD, same can be done by as also. This treat will increase if

companies like Google get into this business.

RECOMMENDATION

Both Panasonic and Dell have to look for creating computers with more durability

because people are now using computers as one of the main part of life, where they

move they take the laptop with them.

Have to create more energy efficiency, it is a fact that it generates lot of heat and also

create environmental problems.

CONCLUSION

In 21stcentury if the business have to sustain then they have join together. There is no miracle

that mergers and acquisitions are becoming common. Last 3 years have closed more business

in the history. If the businesses have to be competitive then they should have a diverse

portfolio. There is no way of existence for the business if they don’t think of strategic

alliances and joint ventures. This venture will help them to have that x factor that will enable

them to face the future. The treats of external environment are there for the business from the

very existence so the business should be strategically prepared to face the uncertain world of

business. Lets hope both DELL and Panasonic will be able to face this external treats. We

cannot completely deny the fact that both companies may even joint together in the future to

face the external treats and to have diversified portfolio they expect to have

REFERENCES

1. Coyle B, 2000., Mergers and Acquisitions, Fitzory Dearborn Publishers, London, UK.

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2. Drucker P (2005), Management: Tasks, Responsibilities, practices, 3rd edition,

Butterworth Heinemann publications, London, England.

3. Gole W. F and Morris J.M, 2007., Mergers and Acquisitions, 3rd edition, John Wiley

and Sons Publishers, New Jersey, USA.

4. Hewitt I, 2005., Joint Ventures, 3rd edition, Sweet and Maxwell Publishers, London,

UK.

5. Povaly S, 2007., Private Equity Exits: Divestment Process Management For

Leveraged Buyouts, Springer – Verlerg Publishers, Berlin, Germany.

6. Porter M (2008), On competition, Harvard business school press, Harvard, USA

7. Reuer J.J, 2004., Strategic Alliance: Theory and Evidence, Oxford University Press,

UK.

8. Sherman A.J and Hart A.M, 2006., Mergers and Acquisitions from A to Z, 2nd edition,

Amacom Publishers, New York, USA.

9. Stahl G and Mendenhall M.E, 2005., Mergers and Acquisitions: Managing Culture

and Human resources, Stanford University Press, California, USA.

ONLINE REFERENCES

1. Panasonic begins Sanyo take over http://news.bbc.co.uk/1/hi/business/8343743.stm accessed on 19th march 2010

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2. Tally dell India announce strategic alliance,http://www1.ap.dell.com/content/topics/topic.aspx/ap/corporate/en/pressoffice/2008/in/2008_11_06_in_000?c=in&l=en accessed on 21 st march 2010

3. http://www.quickmba.com/MarketingStrat.shtml .

4. http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1074407579

5. http://www.entrepreneur.com/encyclopedia/term/82488.html

6. http://www.allbusiness.com/glossaries/acquisition/4943476-1.html

7. http://www.dell.com/content/topics/global.aspx/corp/pressoffice/en/ 2008/2008_06_04_rr_000?c=us&l=en

8. http://blogs.reuters.com/mediafile/2009/09/21/who-runs-mergers-and-acquisitions-at-dell/

9. http://fcw.com/articles/2009/09/21/dell-perot-systems-merger-effects.aspx

10. http://www.joystiq.com/2006/04/16/dells-alienware-purchase-the-week-after-the-morning- after/

11. http://www.extremetech.com/article2/0,2845,1938204,00.asp

12. http://www.smartbrief.com/news/aaaa/companyData.jsp?companyId=3928

13. http://www.panasonic.net/history/

14. http://www.nytimes.com/2008/11/08/technology/companies/08panasonic.html?_r=1

15. http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1383

16. http://www.pocket-lint.com/mergers

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