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Question 1: Select one anyone merger or acquisition deal from the below mentioned "Top 10 Deals" and assess the extent to which it involved related or unrelated diversification.
Answer 1: The firms use diversification strategies for entering new industries. In vertical integration, the firm moves into a new but existing part of the value chain, while diversification means moving into an entirely new value chain (Ljubownikow & Ang, 2020). Many firms use mergers or acquisitions to accomplish this, while others may move into new industries without involving with any other firm.
In related diversification, a firm chooses to move into a new industry which has some important similarities with the firm’s existing business lines. For example, As Google is in the information business, it purchased Titan Aerospace, which makes solar-powered drones. This is related diversification. In this way, the firms that aim to build or exploit their core competencies engage themselves in related diversification to become more successful (Ljubownikow & Ang, 2020). Core competency is defined as a skill set which the competitors find difficult to copy and it can be used in various businesses and provides benefits to customers within each business (Patrisia & Dastgir, 2017).
Unrelated diversification occurs when a firm decides to enter such an industry that lacks similarities and is not quite similar to the firm's current industry or business (Ramaswamy, Purkayastha & Petitt, 2017). Most of the unrelated diversification strategies do not lead to happy endings. For instance, once Harley Davidson made attempted to sell bottled water under the Harley brand. Similarly, Starbucks opted to diversify into the furniture business using its brand name. Both efforts proved to be disastrous and also led to a lot of expenditure both in direct and indirect costs of marketing and executive time. Although both the brands are iconic, yet they could not transfer their strategies effectively to bottled water and furniture businesses (Ramaswamy, Purkayastha & Petitt, 2017).
Finaccess Capital is a growing company. It offers casual dining services and has a strong presence in the quick-service restaurant sector. It also has its presence in the real estate business in Europe and Asia. The company provides support to strong brands in the market and works to increase their potential to the maximum and create value for the long term using its expertise in controlling their operations (Receipt of Finaccess Takeover Notice, 2018). It has its major investments currently in public companies such as AmRest which is an operator of European casual dining and quick-service restaurants (Receipt of Finaccess Takeover Notice, 2018).
On 10 December 2018, Finaccess Capital used its subsidiary Global Valar S.L. and made an offer of partial takeover for up to 75% of Restaurant Brands New Zealand (Shahzad, 2018).
The Partial takeover closed on 26 Mach 2019 and as a result, Global Valar S.L. became the shareholder of 75% of shares of Restaurant Brands (Shahzad, 2018).
The diversification strategy opted by Finaccess Capital is related diversification as the company has moved into a line of business of Restaurant brands which is related and shares important similarities to the current industry to which the company belongs. As the company already has a presence in line with Casual dining and quick-service restaurants and it has now taken over Restaurant brands of New Zealand, both businesses belong to the same industry and have a lot of similarities (Shahzad, 2018).
Question 2: Using share price information (indicating shareholder’s reaction), published media reports, post-merger/acquisition financial results, assess whether your chosen merger or acquisition deal led to creating greater shareholder’s value or not. Provide evidence to support your answer.
Answer 2: Restaurant brands are a franchisee that specializes in managing the branded chains of food retails. The company's customer service centre is located in Penrose, Auckland while other regional centres for services are at Sydney and Honolulu. The company is registered at 2 two stock exchanges i.e. New Zealand and Australia. There are around 9600 employees who are hired across New Zealand.
Global Valar is an investment banking company that invests in various businesses and is a subsidiary of Finaccess Capital. Finaccess capital is a growing company and Global Valar has brought in 75% shares of the restaurant brand. The deal was carried out at $881 million. Each share was offered at $9.45. The news of the merger upgraded the value of shares and the prices reached $8.69 (Catherine Harris, 2018). The company was already familiar with the business of restaurants as it has its stakes in AmRest that has several brands like Pizza hut and KFC under them. This deal will help the Restaurant brands in growing through the next phase. The deal got completed in the year 2018. Once the offer was made there was a change in the movement of shares. The deal added a premium to the restaurant brand's previous trading (Global Valar recommended offer, 2018).
The share prices moved up due to the better position of funds. Restaurant brand got financial aid for its growth and since the company was already into the restaurant business and a long term investor, it provided an opportunity for the Restaurant brand to grow. The shareholder's view was positive and this was the best deal for the company. Also, the movement of share prices was positive on the stock exchange for the next year. This can be depicted as follows:
The deal was finalized in the year 2018 after November. Once the Global Vesar took over 75% of the Restaurant brand the prices of the shares started moving in a positive direction. After, November 2018 the share prices have moved upwards from being above 50 to be at above 70. Share prices have now subsided at 60. This shows the positive growth of the company's share value. The holders would have generated better returns than the company was able to reap before. The value of the company grew that led to its increase in stock prices. So, the deal served as an important tool for development for the Restaurant brand. They got their funds for expanding the business. In the same manner, the value of shares improved leading to an increase in the profits for the shareholders. So, the merger served as a successful deal as it brought in overall profits. If the company would have taken over completely Restaurant brands then the capital funding from the stocks would have stopped. And as Restaurant brands were in a growing phase it required capital. Thus, some of the funding came from the Finaccess capital through its subsidiary and the more can be raised from the stock exchange dealings and as a Restaurant brand is improving its value more investors will be interested in dealing or investing in the company. Hence, the merger created better shareholder value for the company.
Question 3: Use the three international corporate strategies of the below-mentioned exhibit to classify and explain the international corporate strategy of any large multinational corporation (MNC) with which you are familiar. Discuss whether the MNC is using international location to lower cost, or differentiating products, sharing resources and capabilities, or gaining cross-border coordination benefits. Provide evidence to support your answer.
Answer 3: A firm that is operating in more than one country is called Multinational Corporation (MNC). Some international strategies have been chosen by MNCs such as Kia and Walmart. There are three major International strategies used by these MNCs (Andersen & Andersson, 2017).
First is a Multi-domestic strategy in which the firm opts to sacrifice efficiency to favour the local requirements and gain responsiveness from each of its markets (Andersen & Andersson, 2017). For instance, instead of showing all the American made shows to viewers globally, MTV manages to customize the shows on its channels available to different countries such as Portugal, New Zealand, Pakistan, India, and more. A similar strategy is followed by the Food Company Heinz which offers its products according to the local preferences (Głodowska, Pera & Wach, 2019). As some Indians do not add or consume garlic and onion in their food, so it has a special version of its ketchup in which onion and garlic is not included in the ingredients (Andersen & Andersson, 2017).
The second strategy is the Global Strategy (Głodowska, Pera & Wach, 2019). In this, the firm is involved in emphasizing efficiency and sacrifices responsiveness to local requirements in its market. Microsoft uses this strategy as it provides the same software programs globally. However, it makes some changes in the program to match local languages (Gitia, 2017).
Last one is the transnational strategy in which the firm looks for something between a multi-domestic and a global strategy. The firm using this strategy seeks to maintain a balance between the need to take care of the local preferences of various countries and the desire to attain efficiency (Głodowska, Pera & Wach, 2019). Different food chains like McDonald’s and KFC use the same brand name and their menu has the same majority of items around the world. However, while offering the same item in different countries, they also try to offer the items with some changes as per the local tastes. For instance, in France, McDonald’s offers wine as wine is the central element of French diets (Gitia, 2017).
KFC is a food chain restaurant and it has been a top player in the food industry for several decades operating in the US and internationally. It serves more than 12 million customers each day which makes it the most patronized food chain restaurant in the world. KFC has always displayed its product and service differentiation as its sustainable competitive advantage. It has been proved a leader in the industry due to the professionalism of management, innovation, and the use of processes for food preparation effectively and efficiently. The company is continuously increasing its business and development in the global market using its cost leadership and strategy of differentiation (Pruthi, Basu & Wright, 2018).
There are four strategic pillars on which KFC's sustainable competitive advantage and its success are based on. They include the service, quality, cleanliness, and value offered by KFC to its customers through its products. These help the company to gain a more competitive advantage over its competitors. McDonald's which is KFC's main competitor increased its stores to more than 37000 across the world. However, due to the proper creation and implementation of strategies, KFC's overall share of the market has increased rapidly (Pruthi, Basu & Wright, 2018).
The first strategic pillar of KFC is Services (Pruthi, Basu & Wright, 2018). The company introduced the concept of "freshly cooked meal". This concept gave the consumers a new perspective of freshness and quality, unlike the other competitors who used to warm the prepared food using the microwave. The slogan "we make chicken the hard way" at KFC became one of the most popular slogans. At KFC, each piece of chicken is carefully inspected by the cooks to ensure that each batch has the world's best chicken (Rui, Huang, Lu, Wang & Wang, 2016). This proves that the service is a crucial part of the company even when the meal is being prepared. The restaurant tries to pay complete attention to each customer service and ensures that they get an online survey filled by each customer that visits their place to get feedback regarding their food and services from the customer. This information is then used by them in making improvements in customer service in the future. KFC ensures that whether it is a local or foreign outlet, there must be no difference in the services provided to the customers; hence it tries to offer the same experience to each customer across the world (Rui, Huang, Lu, Wang & Wang, 2016).
The next strategic advantage used by the company is quality. Quality can be defined as the basic feature of something. The taste and specifications of a meal in the food industry help to decide if it is eligible for five stars or not. It can also be said that quality implies a product's ability to satisfy what is already stated. It comes along with the customer's expectations. Unlike other quick-service restaurants, KFC cooks its food and serves it to the customers(Rui, Huang, Lu, Wang & Wang, 2016). Hence, KFC’s food quality is much better than the food of other QSR who tend to provide the meals that are cooked in a central kitchen, frozen and then reheated for customers. It provides top quality food, prepared in clean kitchens, and served in a manner that provides value to its customers.
Question 4: Critically assess and evaluate whether the MNC (Your chosen MNC in question 3) can create competitive advantage or sustainable competitive advantage. You are required to apply the 4 success criteria in assessing the competitive advantage. Provide evidence to support your answer.
Answer 4: The mission statement of KFC includes selling food in a friendly environment that interests pride conscious and healthy-minded customers (Achola, 2016). This helps to maximize profitability and helps in the improvement of the value of shareholders and brand equity. KFC takes advantage of the determination and variety of strategic skills shown by the stakeholders and their commitment to achieving customer satisfaction (Achola, 2016). It is the collaborative efforts of the stakeholders which helps KFC to gain a competitive advantage over its competitors.
McDonald's has been the biggest competitor of KFC for a long time (Rui, Huang, Lu, Wang & Wang, 2016).In 1954, the operations were taken up by Ray Kroc and he transformed the chain into a franchise operating globally. This way McDonald’s became one of the world’s most famous quick-service restaurants. This led to severe competition between KFC and McDonald’s which enabled more innovation from both restaurants (Dew & Dew, 2018). The difference in the price or cost of products originates from the hundreds of activities required for creating, producing, and selling/ delivering the products and services. The activities generate costs and if these activities are done more effectively and efficiently, it leads to advantages.
Both McDonald’s and KFC do not sell the same products still there is a price war between them as they both aim to attract more customers to their outlets. In the price war, they tend to use the customer experience as a tool to differentiate themselves from each other in the competition (Dew & Dew, 2018).
KFC’s strategy includes international franchising by dominating the international market as the centre of focus. It focused on how to make meals that can meet the criteria of constantly changing tastes and preferences of the market (Dew & Dew, 2018). They established alliances with the local raw material suppliers which helped to make the KFC's community stronger and created a competitive advantage (Dew & Dew, 2018).
KFC needs to make strong connections with young consumers who are more inclined towards the fast-food industry. For millennials, taste and service is the priority, and to capture this target market, more importance is given to these concerns (Anand & Yeung, 2018). After establishing itself in the U.S market, KFC shifted its focus on international expansion. KFC relied on the U.S. culture and food in the global market and used it as a competitive advantage by choosing such a segment of the market where the competitors did not possess this strategy. The first-mover advantage was used by the company (Anand & Yeung, 2018).
If a company wants to gain a competitive advantage over its rivals, it must know the situation and power of its competition. The rivals try to copy each other in terms of improvements in quality, supplier partnerships, adopted strategies and no one wins (Anand & Yeung, 2018). The differences in the company's costs are derived from different activities used to create, sell, and deliver products. So, to create a cost advantage, the company must do these activities more efficiently than rivals. KFC has a more competitive advantage with the services it provides to customers as well as through corporate social responsibility which helps to sustain the competitive advantage time (Tien & Hung Anh, 2018).
Achola, M. A. (2016). Franchising as a market entry strategy by Kentucky fried chicken into Kenya (Doctoral dissertation, University of Nairobi).
Anand, D., & Yeung, D. (2018). Employee development and its effect on employee performance at KFC Restaurant Brands.
Andersen, T. J., & Andersson, U. (2017). Multinational corporate strategy-making: Integrating international business and strategic management. In The Responsive Global Organization. Emerald Publishing Limited.
Catherine Harris. 2018. Business. Mexican investor confirms partial takeover bid for Restaurant brands. Retrieved from: https://www.stuff.co.nz/business/industries/108863297/mexican-investor-confirms-partial-takeover-bid-for-restaurant-brands#:~:text=Global%20Valar%20SL%2C%20a%20subsidiary,to%20%248.45%20on%20Monday%20morning.
Dew, R., & Dew, R. (2018). Understanding Competitive Advantage', Customer Experience Innovation.
Gitia, W. G. (2017). The Influence of Competitive Advantage Strategies on Performance of International Fast Food Franchises in Nairobi, Kenya (Doctoral dissertation, University of Nairobi).
Głodowska, A., Pera, B., & Wach, K. (2019). International Strategy as the Facilitator of the Speed, Scope, and Scale of Firms’ Internationalization. Journal of Management and Business Administration. Central Europe, 27(3), 55-84.
Ljubownikow, G., & Ang, S. H. (2020). Competition, diversification, and performance. Journal of Business Research, 112, 81-94.
Patrisia, D., & Dastgir, S. (2017). Diversification and corporate social performance in manufacturing companies. Eurasian Business Review, 7(1), 121-139.
Pruthi, S., Basu, A., & Wright, M. (2018). Ethnic ties, motivations, and home country entry strategy of transnational entrepreneurs. Journal of International Entrepreneurship, 16(2), 210-243.
Ramaswamy, K., Purkayastha, S., & Petitt, B. S. (2017). How do institutional transitions impact the efficacy of related and unrelated diversification strategies used by business groups?. Journal of Business Research, 72, 1-13.
Receipt of Finaccess Takeover Notice (2018). Retrieved from: https://www.nzx.com/announcements/327344
Recommended offer. 2018. Global Valar. Retrieved from: https://www.restaurantbrands.co.nz/global-valar-offer-document/
Rui, Y., Huang, H., Lu, M., Wang, B., & Wang, J. (2016). A Comparative Analysis of the Distributions of KFC and McDonald’s Outlets in China. ISPRS International Journal of Geo-Information, 5(3), 27.
Shahzad, M. (2018). S&P global intelligence. Retrieved from: https://www.spglobal.com/marketintelligence/en/news-insights/trending/4GFVBzq5lkVGmkFWrgTiGQ2
Tien, N. H., & Hung Anh, D. B. (2018). Gaining competitive advantage from CSR policy change: the case of foreign corporations in Vietnam. Polish Journal of Management Studies, 18.
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