Why FM Decided to Participate in Alliances

The following sample essay on Forbes Marshall Products discusses it in detail, offering basic facts and pros and cons associated with it. To read the essay’s introduction, body and conclusion, scroll down.

This report will highlight why FM chose to engage in alliances instead Of acquisitions as its primary method Of creating a competitive advantage as an innovative global manufacturing firm. Horizontal integration strategies offer certain similar advantages but have various differences that are attractive to companies depending on their objectives and ultimately their risk appetite.

Strategic alliances and acquisitions both lead to operational synergies, increased market penetration, access to human capital, decreased competition and potential for greater profitability.

However, in the case of FM, the company relied very heavily on alliances due to a number of reasons mentioned below and is also highlighted in Appendix A (Comparative Analysis of Acquisitions and Alliances): 1) Decreased Risk Capital- Risk Capital is defined as the capital that can’t be recovered if the company goes bankrupt.

FM has absolutely no exposure to their partner’s risk capital through horizontal integration as it allows them to sell products and reap the benefits as one entity but not be exposed to any potential suffering due to the other’s financial performance.

Strategic alliances make it a lot easier to walk away from if the worst-case scenario were to occur, not only mitigating risk factors UT also eliminating downside risk as a whole. It becomes an alternate to vertical integration, without the problematic bureaucratic costs from inefficient production processes and lack technological progress within a very static company.

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Mergers through vertical integration may expose a company to reap all the benefits from the acquisition, however it also implies that the company inherits the risks involved.

Forbes Marshall

Fem. strategic alliance with Kronor is a great example as through the horizontal integration, FM does not have any control nor are they affected financially by the way Kronor operates in the German markets. This leads on to another strategic implication called due diligence. FM didn’t have to conduct a very extensive due diligence prior to their alliances making the process of forming joint ventures significantly easier and a lot quicker – proving beneficial for both entities involved. ) Increased Market penetration- Existing customer segments, brand loyalty, demand for existing products are some of the advantages of forming alliances in new markets. Alliances provided FM the opportunity to leverage an already existing brand in the market and capitalize on their profitability on unique and innovative products sold in the market. This can be directly related to attributes of the Fem. transnational strategy of gaining a competitive advantage through alliances in different markets thereby increasing their market penetration and brand recognition in India and Abroad.

For example, the joint venture with Spiral allowed FM to capitalize on Spiral competitive advantage of providing products that would enable Indian companies save energy. By employing a localized customer oriented product offering, FM managed to compete with companies like Thermal Ltd ND Armstrong International that only brought foreign made products for sale in India. This reduced industry rivalry by portraying FM as a company that is a lot larger in size, enabling it to penetrate further into the market since their competitors weren’t customer focused at all. ) Retain Individual Operational Control and Cultural Differences: FM used alliances to grow as a unified business force in the global market by providing a diverse range of products tailored to specific customer needs, all while maintaining its individual core values and unique practices. Conducting any type of merger in NY foreign market exposes the companies involved to a variety of differences in cultural and operational matters across different borders.

Through forming strategic alliances, FM collaborated & conducted operations with companies that share the same core values without educate themselves on the different cultural norms these companies face with their specific customer segments. A number of important competences were gained from these alliances that FM previously lacked – strengthening the company as a leader in Marketing and Sales, Logistics, and ultimately customer satisfaction.

Although these synergies would have still been present through an acquisition, an alliance was more favorable as they didn’t force the entities involved to change culturally or operationally, but allowed them to voluntarily improve their operational competencies and strengthen their competitive advantage. From a strategic perspective, this worked out very well, since customer preferences weren’t affected by these joint ventures, and demand for entity specific products continued to grow. ) Operational Synergies- For FM, reaching out to an international customer base, benefits from economies call through production, and learning innovative competences were the primary reason why they engaged in alliances. For example, FM gained a significant portion of Cadet’s technological expertise from the joint venture with Code’, all while providing Coded with the enhanced opportunity to economically conduct business in India. An acquisition would also provide similar benefits but there is no certainty that the operational synergies would stay the same after.

Refer to Appendix B for key competencies gained from Fem. alliances. 5) Lower Costs Structure – This strategic decision implemented y FM to keep the location of production in India while also engaging in a variety of business activities worldwide led to large growth and dominant success as a differentiated multinational company. The economic benefits that arose from continuing the value creation activity of research, development, and mainly production in the local plant situated in India were tremendous.

One of the biggest advantages of forming alliances was an increased bargain power with suppliers that allowed FM to reduce costs for direct materials since they company can get volume discounts from being a argue buyer. Furthermore, forming alliances allowed FM to focus on continuing to reap the economic benefits such increased market power, lower product costs and production efficiency, while having newly ventured partners reap the benefits of on extracting the most out of their newly entered profitable Indian Markets. ) Differentiated Value Proposition and Customer Offering- FM enhanced the quality of its core business products by employing the strategies used by the companies they partnered with, thereby allowing them to strengthen their differentiated value proposition. For example, FM used the alliance with Kronor to develop several good practices in R and manufacturing that ultimately allowed it to be represented as the producers of the most accurate flow meter in the world.

Acquisitions On the other hand do provide the same benefits, however they come with the added risk of ownership to the brand and thereby exposing the company to risks associated with fluctuating demand for products not necessarily in the parent’s line of expertise. To conclude, this report indicated that the benefits achieved through alliances re a lot more favorable when compared to acquisitions.

It is not certain that Forbes Marshall engaged in numerous strategic alliances with in intentions of growing as a differentiated company that provided solutions tailored to customer needs and expectations. Instead of being an imported/exporter of products and innovations through their ventures, FM managed to capitalize on the expertise and competencies of the companies they ventured With and ultimately became a global leader in process efficiency and energy conservation. Appendix A -? Comparative Analysis of Alliances Vs. Acquisitions