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Mergers, Acquisition And International Strategies Essay


Mergers and acquisitions have become very common in contemporary business environment. This is because of the increased appetite of corporations to expand their operations into the international markets in order to take advantage of the growing profit potential.

In addition, firms are experiencing increased competition in their respective markets, thus finding it more prudent to engage in mergers or acquisitions as a strategy of gaining competitive advantage.

This paper will discuss two companies, where one (Walmart) has entered into a merger and diversified internationally, and the other company (D. R. Horton) has concentrated on domestic market without engaging in a merger.

Walmart’s Merger with Massmart

The contemporary Business environment has become very competitive, forcing many companies to invest in strategies that will make them gain competitive advantage. Most of the large companies are opting for mergers, acquisitions, or internationalization strategies as means of enhancing their operations.

One company that has embraced the importance of mergers and acquisitions is Walmart, as it enhances its business penetration across the globe. Walmart is one of the largest retail chains in the world, thanks to its low-price business model.

This approach has shown sensitivity to the needs of consumers, leading to the phenomenal growth of the company since its inception in 1962, and forcing the company to spread to foreign markers.

Today, Walmart is present in all continents of the world. However, Walmart’s global success has been facilitated by its strategy of merging with retail chains in the destination countries and blending its business model with the cultures of those markets.

One of the most high profile mergers that Walmart has been involved in is that of Massmart South Africa (Roberts & Berg, 2012). This merger seems to stand out due to its magnitude and the controversy it generated before its completion.

Massmart was one of the leading retailers of general merchandise in Africa prior to merger with Walmart, and operated in 14 countries in Africa. What attracted Walmart is the Massmart’s unique business model of high volume, low margin, and low-cost distribution of branded consumer goods.

This is in addition to its segmentation of business operations into four core groups namely Massdiscounters, Masswarehouse, Massbuild, and Masscash, each of which dedicated and specialized in a certain line of business or merchandise. In addition, Walmart viewed the African market as being unexploited and bearing a huge potential for sustainable growth and profitability of business.

However, despite the potential benefits that the merger would bring to the economy of South Africa, the government of South Africa expressed explicit resistance and reservations with claims that such a deal would have adverse effect on job market as well as hinder the growth of local manufacturing and production industries.

Nevertheless, the deal sailed through, albeit with conditions that saw Walmart take 51% shareholding and the rest going to the local investors.

The justification of this merger can be derived from the benefits enjoyed by both firms. First, Walmart gained from entering a well-established market, which was further compounded by the agreement signed with the government and labour unions allowing Walmart to introduce its business model and penetrate in the African retail market.

Secondly, Massmart was already a leader in retail business, meaning that, Walmart would not have to invest heavily in trying to capture market share in the new market. Thirdly, given that the market was readily available, Massmart only needed the expertise of Walmart in supplier planning and farmer development in order to improve on fresh food supply.

Moreover, the two firms complemented each other well as they embraced almost a similar business model of low-price to consumers. Indeed, the success of the merger is evident from the tremendous growth the merged business has witnessed in the last couple of years (Roberts & Berg, 2012).

D. R. Horton Domestic operations and Proposed Merger

D. R. Horton is an American company that has been in operation for the last 35 years. The company deals predominantly in real estates development and in particular specializing in single-detached dwellings. With its headquarters in Texas, the company operates exclusively in 26 states within the US, and it is ranked among the largest house builders in the US (D.R. Horton, 2013).

Despite its success, which is evidenced by high performance in the New York Stocks Exchange, the company has never contemplated merging with or acquiring another company. However, given the increasing demand for housing and other real estate products, the construction industry is becoming one of the most lucrative and profitable industries, thus attracting many firms to join and share these profits.

The result of this is increased competition and potential decline of market share for existing companies. Therefore, firms have to seek ways of improving their presence in the industry and attaining a competitive advantage. One of the mostly used strategies in contemporary business environment involves mergers and acquisitions.

In the case of D. R. Horton, a merger with a company like Lennar Corporation would prove appropriate due to the fact that both companies operate in the same industry and both are performing well in the US market.

In addition, Lennar Corporation has been in existence for a longer time (almost 60 years) and therefore it is more conversant with the history and trend of construction industry in the US. The positive aspect of this merger would be an increased market share and a strong capital base.

There a number of aspects, which make Lennar Corporation to standout as the most valuable merger candidate: First, the company has maintained a consistent history of quality, value, and integrity, which is a very important marketing tool. This is because most clients in construction industry would primarily focus on quality of the product and the value it will add to their lives.

Secondly, Lennar Corporation does not only focus on customer satisfaction, but also reinforcing that satisfaction with delight and happiness. Indeed, Lennar Corporation offers a unique service called Total Lennar Care that makes home purchase process a joy for customers, which includes a follow-up service by a dedicated and competent team of customer care (Lennar Corporation, 2013).

Thirdly, Lennar Corporation has a wide network of operation units with presence in over 18 states with the US. This will complement the units owned by D. R. Horton, making the merger one of the largest, if not the largest, real estate companies in the US. Lastly, the merger will provide a diversification of business due to the fact that Lennar Corporation has other business undertakings that are outside the real estate business.

These businesses include the Lennar Financial Services and Rialto Capital Management. The advantage of this will be the fact that, potential buyers of property will not need to look outside for financing but they will get financing within the company through the Financing Service business unit; indeed, clients will experience a one-shop-stop kind of business when the merger goes through.

Overall, a merger between D. R. Horton and Lennar Corporation will result to various benefits including reduced costs of operations, as some of the functions have to be merged such as marketing and advertisement. Secondly, the larger company will enjoy economies of scale especially in purchasing raw materials.

Thirdly, the larger company will have an increased potential to penetrate into a large market, especially considering that the two companies have been successful in their businesses as well as due to the fact that there will be an increased diversification of products from the larger company.

Lastly, the two companies will bring on the table expertise in different fields, thus enhancing innovation and greater industry performance (Gaughan, 2010).

Walmart’s International Business and Corporate Level Strategies

The success of Walmart in the international market may be attributed to the business-level and corporate-level strategies it adopts. Primarily, Walmart positions itself as a low-price retail chain supplying quality general merchandise. Therefore, the company focuses on cost leadership/differentiation as its strategy for gaining and maintaining competitive advantage (Schermerhorn, 2011).

It is important to note that the retail market is one of the most competitive markets; however, although many retail stores have tried to compete with Walmart, they have completely failed to beat it on pricing strategy.

In addition to low cost of products, Walmart also offers high quality products and ensures that it retains its image as a one-stop-shop, where consumer can find any type of products from food supplies to electronics to building materials and so on. Indeed, no other company has managed to beat Walmart in terms of variety of products, thus the success of its differentiation strategy.

Moreover, Walmart ensures that it continues to improve on its value chain by primarily focusing on providing value through its processes, a strategy that has significantly contributed to cost reduction in the company.

This is also enhanced by the company’s aggressiveness in embracing technology and innovation in all its stores worldwide, with the latest technological stunt being adoption of e-business concept where shoppers can make orders and pay through the internet.

However, despite this business strategy witnessing success in most international markets, there have been instances of total failure, especially in Germany and Korea; the company also struggled to penetrate the China market. One of the most undoing here is the cultural perceptions of the people in these countries regardless of whether the products are low-priced or not.

Therefore, it is recommended that Walmart try to understand the culture of the people first, and then enter the market using a strategy that makes the locals identify with what Walmart offers or what reflects their culture.

On corporate-level strategies, Walmart has adopted various corporate level strategies including horizontal integration, related diversification, and unrelated diversification among others. However, all its corporate strategies are geared towards reinforcing its cost leadership/differentiation strategy.

For instance, Walmart has adopted unrelated differentiation strategy by investing in transportation, logistics, and communication systems industries, where it gets not only increased revenues but also a platform for reducing its costs (Dess, Lumpkin, Eisner & McNamara, 2011).

Investment in technology has also contributed to Walmart s corporate positioning, as it has allowed the company to retain a lean management. The company’s website plays a great role in management of inventory and sales, as consumers can create accounts, order for products and track their orders online.

Moreover, the technology and inbound logistics enable the company to manage inventories efficiently by scheduling procurements, delivery, and managing the warehouses.

D. R. Horton’s Business and Corporate Level Strategies

Business level strategies normally refer to actions that a firm undertakes to enhance customer satisfaction and to gain competitive advantage. Therefore, D. R. Horton may consider various business level strategies in order to continue enjoying success in the industry or to become the leader in the construction market.

However, given the kind of market the company targets, it is most advisable to pursue the business- level strategy of differentiation, which will make the company unique from competitors.

Here, differentiation will be in terms of quality and value-addition to customers. It is important to note that, clients in the construction market will mostly focus on the quality of housing before considering price; indeed, they will more likely purchase a house of high quality even at an exorbitant price than a cheap house that will not be durable.

Therefore, D. R. Horton will need understand its position in the competitive construction market and then differentiate and position itself more strategically. Importantly, differentiation will be successful if the company addresses quality in terms of product, delivery, and promotion.

Here, D. R. Horton will have to invest in technology as well as the most unique and innovative architectural designs that will make it stand out as a home of value and quality. In addition, the company will need to look for strategic locations to deliver its housing projects, as well as use strategic promotional methods such as home expos/exhibitions and after-sale customer care services.

D. R. Horton will also need to consider corporate-level strategy that will push its business and profitability forward. As discussed above, D. R. Horton may consider merging with another company in the same industry in order to expand its market penetration, a strategy called horizontal integration.

However, in this section, I will suggest that D. R. Horton considers related diversification as a corporate strategy in order to enhance performance. Here, the company will need to invest in related businesses such as supply of construction materials, transport of materials and property management among other related businesses.

This strategy will allow the company to derive profits from each class of business and consolidating its industry performance. This will also be boosted by the fact that some firms in the construction industry will outsource related business from D. R. Horton’s related business portfolio, thus making it the largest company in terms of market share.

References

Dess, G., Eisner, A., Lumpkin, G., & McNamara, G. (2011). Strategic Management: Creating Competitive Advantages. New York, USA: McGraw-Hill Education.

D.R. Horton. (2013). D. R. Horton: America’s Builder. Retrieved from

Gaughan, P. (2010). Mergers, Acquisitions, and Corporate Restructurings. New York, USA: John Wiley & Sons.

Lennar Corporation. (2013). Lennar Corporation. Retrieved from

Roberts, B., & Berg, N. (2012). Walmart: Key Insights and Practical Lessons from the World’s Largest Retailer. London, England: Kogan Page Publishers.

Schermerhorn, J. (2011). Introduction to Management. New York, USA: John Wiley & Sons.

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