Intense global competition has heightened the need for companies to undertake mergers and acquisitions (M&A) as a primary means of enhancing their competitive advantage. Horizontal M&A’s, often done between direct competitors operating in the same industry, have become progressively popular in business practice.
However, there exists compelling evidence that most M&A activities are largely unsuccessful, with industry analysts putting the estimated failure rates at between 60 and 80% (Homburg & Bucerius, 2005). This realization does not imply that M&A’s have not worked for some organizations; to the contrary, well planned and executed M&A have been able to record significant success in a number of areas perceived to be of critical importance to the optimal functioning of business activities.
It is the purpose of this paper to explain how Cisco and Wal-Mart propensity for acquisitions have inarguably enabled the companies to remain competitive and achieve their business objectives in the face of enhanced global competition and an ever changing business environment.
Cisco, more than any other firm operating in the high-technology industry, has managed to build a leading market position through acquisition (Mayer & Kenny, 2004).
The company has not only been involved in many more acquisitions than its main competitors such as Nortel, Ericsson, Juniper Networks and Alcatel Lucent, but it has recorded fewer failures. Indeed, while Cisco’s star continues to shine, some of the mentioned competitors are on the blink of bankruptcy despite the fact that they were also involved in aggressive acquisition.
According to Mayer & Kenny (2004), acquisition price alone cannot in any way be used to explain Cisco’s success story since other competitors paid comparable prices to effects their own acquisitions.
Cisco has received praise from many quarters for effectively using acquisitions as a fundamental constituent in its overall competitive strategy. By 2001, the company had effectively acquired 71 enterprises for over $34.5 billion, and successfully leveraged these acquisitions to beat competition and become a market leader.
Mayer & Kenny (2004) posits that “…without these acquisitions, [Cisco] could not have maintained a compounded annual growth in revenues and profits of over 30 per cent from 1987 through 2000, and likely would have been out-flanked by startups” (p. 300). As such, it can be argued that the acquisitions have assisted Cisco to expand its resource base by enabling it to enter multiple markets with relative ease.
Second, Cisco’s acquisitions have enabled the company to transfer and acquire critical knowledge across geographical locations for enhanced global marketing opportunities. Knowledge acquisition and innovation is critical in the technology industry, and Cisco has effectively used the window of acquisitions to leverage the two, thus enhancing its competitive capabilities (Mayer & Kenny, 2004).
Third, by acquiring small high-technology startups, Cisco has effectively used their personnel’s intellectual property and product familiarity to further enhance the company’s dominance in the market (Mayer & Kenny, 2004). The company believes in retaining critical staff of the acquired firms so as to make use of their knowledge and product familiarity to conquer the market.
Forth, Cisco has used acquisitions to expand into new technology areas that promise more growth for the company (Mayer & Kenny, 2004). This factor is demonstrated by the way Cisco acquired smaller companies involved in making switches that were less costly and more efficient than the original routers.
Through the company’s expansive support network and good public image, Cisco has been able to net more customers for the switches, thus increasing its resource strengths as well as its competitive capabilities. More importantly, Cisco, through engaging in acquisitions, has been able to project a wide variety of products in existing and emerging markets to be ahead of its competitors. This enhances its market share.
Wal-Mart, on the other hand, has been involved in acquisitions in countries such as Canada, Chile, U.K., Germany, China, and Brazil. Although some of its acquisitions have been faced with difficulties in integration, the world’s biggest retailer still views acquisitions as a viable option to enhance positive synergistic effects arising from the efficient integration of its productive capacities as well as distribution networks (Serpkenci & Tigert, 2006).
Intensely engaged in the retail sector, Wal-Mart management takes cognizance of the fact that their ability to reach more customers across geographical locations is not only a resource strength in terms of generating more revenues for the supermarket chain, but also a competitive strategy aimed at endearing its products and services to a wider market segment. As such, it can be argued that Wal-Mart has used acquisitions to enter new markets.
Being in the retail business has obliged Wal-Mart to realize that brands are critical assets that can enhance the company’s capacity to maintain its competitive advantage. Indeed, some of the acquisitions made by the company have been informed by the need to acquire a certain brand that is deemed to open up more marketing opportunities for the supermarket chain own brands as well as the brands of the acquired supermarkets.
Such acquisitions support Wal-Mart strategy of intensifying the breath of its portfolio across product and price segments to achieve optimal growth (Fernie et al., 2006). Bahidir et al (2009) argues that brands are important in the value chain of companies as they “posses a different potential for generating future cash flows as a result of differences in brand-specific factors, such as price or revenue premiums” (p. 49).
Lastly, through acquiring a stake in active retail supermarkets such as Asda of the UK, Wal-Mart have not only been able to achieve economies of scale and coalescing complimentary resources, but the supermarket giant have been able to eliminate inefficiencies in logistics and distribution, and has also gained considerable market power by purchasing key competitors in the retail industry (Fernie at al., 2006).
These coupled with the ability to penetrate new geographic locations through acquisitions have inarguably enabled Wal-Mart to stay ahead of competition.
Reference List
Bahidir, S. C., Bharodwaj, S. G., & Srivastava, R. K. (2008). Financial value of brands in mergers and acquisitions: Is value in the eyes of the beholder? Journal of Marketing, 72(6), 49-64. Web.
Fernie, J., Harn, B., Gehard, U., Pioch, E., & Arnold, S. J. (2006). The impact of Wal-Mart’s entry into the German and UK grocery markets. Agribusiness, 22(2), 247-266. Web.
Homburg, C., & Bucerius, M. (2005). A marketing perspective on mergers and acquisitions: How marketing integration affects post merger performance. Journal of Marketing, 69(2), 95-113. Web.
Mayer, D., & Kenny, M. (2004). Economic action does not take place in a vacuum: Understanding Cisco’s acquisition and development strategy. Industry & Innovation, 11(4), 299-325. Web.
Serpkenci, R. R., & Tigert, D. J. (2006). Wal-Mart’s new normal is here: Is everyone ready to accept the future. Internal Journal of Retail & Distribution Management, 34(1), 85-100. Web.