Mergers, Acquisitions and International Strategies - Coursework Example

Mergers, Acquisitions and International Strategies and Mergers, Acquisitions and International Strategies Mergers and acquisitions are the best ways of gaining an entry into a market. Most of the multinational corporations have, at one time, either merged with others or acquired weaker brands to form formidable forces in the industry (Hill and Jones, 2012). Mergers and acquisitions are the best ways of forming strategic alliances. Trotter and Beaumont (2013) further note that such strategic decisions involve analyzing the corporation to determine its capabilities and then matching them with the opportunities the corporation can take advantage of. For corporations that have internationalized their services, an international business level strategy and the international corporate level strategy have to be developed. This paper will focus on the web communications industry, the most rapidly growing industry in global economy after the turn of the century. It will discuss four corporations, some of which have experienced either mergers or acquisitions and some which have not. In the first part of the paper, the paper will focus on Facebook’s acquisition of WhatsApp evaluating the strategy and the viability of the acquisition. It will then evaluate the international business strategy and the international corporate strategy of the acquiring company with a view to making recommendations for improvement. The second part will focus on a company that is yet to experience either a merger or acquisition and is operating solely in the United States with a view of suggesting a potential suitor who will prove a profitable venture. This part will also propose one business level and corporate level strategies to help the local company expand and internationalize their operations. Facebook’s WhatsApp Acquisition Facebook has been rated as one of the best business start ups of all times. Its website is the second most visited website after Google (Fletcher, 2010). In the ten years it has been operational it has expanded exponentially to be a global brand. A large part of this international growth and prosperity has been attributed to acquisitions. Acquisitions, especially in the web communications industry, can enable a firm manage a rapid international expansion (Trotter and Beaumont, 2013). As of June 2013, Facebook had more than 1.2 billion active users, placing it as the most widely used social networking site in the world. It was also ranked as the third largest American company in the information communication and technology sector after Google and Amazon (Eichenwald, 2013). Facebook recorded annual revenue of US $7.872 billion in 2013, a whooping US $2.8 billion more than the financial year ending 2012. Its growth has been phenomenal recording a growth rate of at least 10% every from 2007. Facebook recorded net income of US $1.5 billion with total assets worth US $17.895 billion (Eichenwald, 2013). Out of the 1.2 billion active users, analysts have established that the majority, close to 950 million users, access the Facebook services via the mobile phones platform. WhatsApp Messenger, on the other hand, is a smart-phone based instant message providing company. It was started in 2009 and is currently handling over 27 billion messages every day. It generates revenue through charging its clients US$ 1 per year after a year of free trial (Privco.com, 2014). Acquisition Strategy Facebook paid US $19 billion in the acquisition of WhatsApp. Many analysts are yet to be convinced that WhatsApp was worth the amount paid. But Facebook had some long term strategic agendas when making the decision. While it is true that WhatsApp can barely be valued above US $3 billion, its potential is great from Facebook’s perspective. Firstly, Facebook has established that of its 1.2 billion users close to 1 billion of them access Facebook from their mobile phones. WhatsApp, on the other hand, has grown its customer base to 500 million in less than 5 years making it a formidable force in the mobile platform (Rowland, 2014). My opinion is that it was a wise decision to acquire a potential profitable venture by Facebook. The acquisition will enable Facebook to reach and tap the potential profits from the youth population that was slowly shifting to instant messaging. Facebook is reliant on online advertisements to generate revenue. But with the changing attitudes towards adverts, especially by the youths, Facebook cannot continue to rely on advertising revenue. Furthermore, WhatsApp was destined to fail in the long run. This is because it does not allow for advertisements and only relies on cheap pricing through provision of the SMS using internet data. This method of revenue generation is not viable in the long run and as soon as it monetize this venture and begin to charge more than US $1 per year it will have to come up with better lucrative packages which, more often than not, will adopt a take-it-or-leave-it model (Trotter and Beaumont, 2013). Without any other means of revenue generation, WhatsApp would have struggled and pushed out of business. Facebook can help the situation by offering the necessary capital to help WhatsApp monetize right now and start offering customer-based services until the time it can start making profits on its own. Facebook will be able to shelve its instant messaging brand, the Facebook Messenger, which is hugely unpopular, and instead take control of the instant messaging through WhatsApp (Rowland, 2014). International business and corporate level strategies The international business strategies are those strategies meant to satisfy the needs of the customers and their unique preferences. These strategies create core competencies through competitive advantages (Hill and Jones, 2012). One of Facebook’s key international business level strategies is cost leadership (Rosenberg, 2012). The company has standardized Facebook as a brand such that its logo is now globally recognized. Its state of the art facilities make it easier to offer its products at competitive prices. Through internal efficiencies, Facebook has been able to provide its services at slightly reduced rates giving it a competitive advantage over its competitors. Facebook also relies on differentiation to capture and retain its target market. The Facebook application has been tailored to accommodate the many nationalities. Through its features, it has taken care of the interests of the individuals and business people alike through creation of pages for specific purposes. The uniqueness of these pages and advertising opportunities make it hard for customers to shift. This customer loyalty is what earns the corporation revenue in the long run. The corporate level strategies include global strategies such as centralized control of the corporation, researching and recommending the implementation of value adding activities (Fletcher, 2010). Facebook achieves this through decentralizing its operation to specific business units in the different regions which are then responsible for creating tailored products for that specific region for example by maintaining the logo but providing the content in the local language. Through such strategies the company can experience global efficiency and achieve local responsiveness (Eichenwald, 2013). This eventually translates to profitability if properly harnessed. NextDoor and Craigslist NextDoor is a social networking site that was started in 2011 by Nivar Tolia and Naval Ravikant. It is a neighborhood based service as the people who are registered are only from the neighborhood. As of 2013, the corporation had around 29,000 users, which was a significant improvement from 2012’s 5,700 (Nextdoor.com, 2014). Currently it has around 50 employees and is valued at US $500 million (Wagner, 2013). Through its neighborhood-based services, NextDoor has been gaining popularity across the US fast. It operates on the understanding that one is likely to benefit more from the information provided by a neighbor than from information provided about another neighborhood situated across the nation. Apart from leveraging the benefits of community focus, NextDoor also provides a perfect opportunity for local businesses to advertise their products at a fee. The individuals can also sell, rent and lease their products. For example, many people without grass mowers use this service to locate where they can borrow or lease. People have even been locating their lost dogs, children and reporting burglary and other crimes through this social media platform. The significance of this information shared is enhanced by the fact that the information shared is local and most likely have a direct impact on the lives and decisions of the community members. NextDoor is yet to monetize its operations and is thus not recording any profits (Wagner, 2013). At the moment the corporation is just focused at providing community service to its community members and adding value to the social media that other social media companies such as Facebook and Twitter cannot. But with the advertising revenue quickly shifting to online media, NextDoor sees itself benefiting from this shift in the near future. It is thus planning to monetize its operations in 18 months time, if all goes according to plan (Nextdoor.com, 2014). However, financial constraints have been its major inhibitor to growth. NextDoor has been able to raise a total of US $100 million through venture capital funding in two phases (Wagner, 2013). If only it gets more capital it can expand its operations and make profit making easier than it is at the moment. With the company looking at the advertising aspect of its product to generate profits in the future, the best suitor for a merger or acquisition will be the Craigslist. Craigslist is rated as the best advertising platform in the world. It was started in1995 giving it ample time to gain market experience. It has also been profitable for a long time, recording revenues totaling US $166 million in the year ending 2012 (Craigslist.com, 2014). Most importantly, Craigslist has internationalized its operations and can help NextDoor to rapidly expand and tap into the international markets. Craigslist offers a platform to make classified advertisements charging between US $10 and $25 per advert (Goldsborough, 2010). These are still very modest prices compared to other media. The management has increasingly stressed that the main aim of the corporation is not to maximize its profits but rather to offer services to the community. This should be in line with the NextDoor’s ambitions to serve the community, only that it will now add a dimension of profitability to NextDoor’s operations. Currently, Craigslist is receiving more than 50 million users who are residing in the US alone, not to count those in other countries. If NextDoor merges or is acquired by Craigslist there would be increased traffic and increased classified adverts, job listings and ‘for sale’ postings. NextDoor will benefit from the injected capital to expand its market base while Craigslist will benefit from the new depth in market penetration due to NextDoor’s ability to reach the deepest and the local end of the communities. An international Business level and corporate level strategy An international business strategy is a strategy that should create a core competency for the corporation on the international market. The strategy should be able to provide value to its customers that may be hard to replicate by competitors (Hill and Jones, 2012). The one major business level strategy that NextDoor should employ is focused differentiation. At the moment there is no differentiation, one just has to be a qualified member and then one is free to use the platform. If there is no differentiation the platform will soon become a crowded market place where there is no order. It will become harder to locate business opportunities advertised on the platform. Since NextDoor was not solely established for business purposes, the company can improve customer satisfaction by differentiating its products such that there is a section for posting job adverts, product adverts, breaking news, ‘for sale’, lost and found, and many other differentiated products it can come up with. This will create brand loyalty even in the event that it is acquired by a larger entity. Brand loyalty has the desirable effect of making the customer retain the marginal propensity to consume even when the prices are increased (Trotter and Beaumont, 2013). The company can then use this customer loyalty to increase their profits by a reasonable margin. An international corporate level seeks to increase the market size and ensure greater returns through economies of scale. One of the reasons that NextDoor does not have many clients is because it is very strict in the registration process. For instance, it requires that one verify their home address via the phone or otherwise before getting registered (Nextdoor.com, 2014). This, of course, hampers registration. The corporation should consider making the registration process easier. Its global strategy should be to standardize the registration process so that it can be used on the global arena (Trotter and Beaumont, 2013). Most online clients are in dire need of privacy, NextDoor does not help much in that endeavor. But for it to effectively globalize its operations it should make the joining process as easy as that of Facebook and Twitter, among others. The increased clientele will guarantee increased profitability. References Craigslist.org. (2014). Craigslist. Retrieved from http://www.craigslist.org/about/sites Eichenwald, K. (2013). Facebook leans in. Vanity Fair, (633), 156-161. Fletcher, D. (2010). Facebook gifts get real. Time, 175(6), 54. Goldsborough, R. (2010). Craigslist as metaphor for society. Business Journal, 24(12), 9. Hill, C., and Jones, G. (2012). Strategic management: An integrated approach. New York: Cengage Learning. Nextdoor.com. (2014) Nextdoor: The private social network for your neighborhood. Retrieved from https://nextdoor.com/ Privco.com. (2014). WhatsApp Inc. Retrieved from http://www.privco.com/private-company/whatsapp-inc Rosenberg, A. (2012). What Facebook financial flop teaches us about selling advertising. Hudson Valley Business Journal, 23(26), 3 Rowland, S. (2014). Why did Facebook acquire WhatsApp? Retrieved from http://www.techfinancials.co.za/index.php/news/536-why-did-facebook-acquire-whatsapp Trotter, J., & Beaumont, J. (2013). Social media: 10 legal guidelines for business executives. Orange County Business Journal, 36(11), 48. Wagner, K. (2013). Nextdoor, a network to connect neighborhoods, raises $60m. Retrieved from http://mashable.com/2013/10/29/nextdoor-raises-60-million/ Read More