In this modern era when the corporate world is full of competition and every organization is running for its own benefits and generating revenues, alliances and acquisitions are of immense importance. Different firm shave different criteria's of entering into alliances or acquisitions and it primarily depends upon the present situation of the business as well as on the nature of the business. An alliance is an agreement under which two or more than two organizations decide to achieve and work for a mutual goal and objective. Alliances are usually short-term in nature and in this type of agreement, none of the organization becomes dependent on the other organization, but, they remain independent. On the other hand, acquisitions occur when either one or more than one organization is in the worst condition and other organization acquires it. Due to this reason, the organization which acquires the other organization receives the reputation of that organization (either good or bad), besides receiving its liabilities, assets and other resources. Those companies that sell their services and products to the customers directly are a good example of alliances (Gancel, Rodgers, & Raynaud, pg. 45,2002).
In addition to this, a detailed analysis is essential before entering into any agreement. Apart from this fact, there are a number of reasons due to which companies seek to enter into these agreements. These reasons and conditions are described below:
Alliances can be of two types that are either with internal allies or with external allies. Companies usually seek for alliances in case of high rate of competition when the company has good innovative products and ideas but its competitors in the market are more powerful with respect to innovation and productivity. For instance, a manufacturing firm, which is facing competition, will always seek for new and innovative ways of rapid, low cost and customized manufacturing. In such a situation, an organization should enter into an alliance. However, just entering into an alliance will not provide the solution to queries. The most significant point is to enter with the right allies at the right time. In case of a manufacturing firm, the most appropriate ally is that manufacturing firm which has new ideas of innovation and productivity. Entering into an alliance will only benefit the firm if it makes an agreement with that ally which can provide assistance in achieving future goals and objectives.
In addition to this, it is also imperative to know that what the ally wants, that is a good alliance with the right ally can only be achieved if both the parties are competent to fulfill the needs of each other. Thus, firms should enter into alliance when they needs assistance from others and can provide assistance as well .Entering into an alliance will reduce competition and help both the parties in achieving targets.
As far as acquisitions are concerned, many reasons exist due to which firms should enter into this type of an agreement. Acquisitions are often considered as an investment by the organization who acquires the other organization (Ulijn, pg. 23,2010). It is because of the fact that the organizations are acquired with the intent of managing them with the innovative capabilities so that the benefits can be harvested. Apart from this, it is imperative that the acquisitions are planned in a systematic way so that the benefits can be achieved. Besides this, another factor, which is important, is that of evaluation. If the evaluation of firms results in a positive way that is if the firms find it competent of gaining benefits from the other firm in the long run than it should enter into an acquisition agreement.
Alliances and acquisitions are an important part of the business in the twenty first century but both of these agreements have its own benefits and drawbacks. These advantages and disadvantages of each of them are as follows:
The basic and the foremost benefit of alliance is that it helps both the parties. If one firm has lack of resources and such resources are available with the other firm then in such circumstance, alliance provides an opportunity to use the resource collectively. The alliance agreement does not aims at bringing loss to any of the firm and due to this reason both the parties have to provide some sort of benefit to each other. In addition to this, another benefit of alliance is that it assists in reaching and capturing the target customers more easily. Healthy promotional activities can be conducted with the help of alliance and customers can be served with more value added services. Apart from this, time as well as cost can be saved in the marketing process with the help of alliance (DePamphilis, pg. 103, 2011).
Besides having certain advantages, some drawbacks are also associated with alliance. One drawback is related with the efforts of the firms, since alliance is an amalgamation of efforts from all the parties, failure from any of the firm will affect the goals of every other firm in engaged in the contract. Similar is the case of reputation. It means that if any one of the firm loses its reputation in the market, it will ultimately affect the reputation of the other firms in the contract. Not only is this, but also as mentioned above that evaluation is the basic element of an alliance. This evaluation is related to the ally and failure to evaluate an ally will result in long-term losses for the firms. Besides this, some risk of privacy is also associated with alliance.
Acquisition also has certain drawbacks besides having its advantages. One of the advantages of acquisition is generating revenue. This revenue can be generated through selling of an asset of an acquired firm or operating in the market of an acquired firm. Market penetration becomes easier due to acquisitions. Besides this, financial growth is rapid and convenient with the use of acquisition in comparison to other methods of financial growth. This financial growth also gives a positive impact in front of the investors and shareholders, and it ultimately results in building a good reputation of the company. In addition to these factors, many other benefits are rendered by acquisition such as assistance in production, reduction in expenses, discount on bulk purchases etc. Many of the famous companies have achieved success through acquisitions and the companies of Fortune 500 are a good example of it.
Besides having multiple advantages, some drawbacks are also associated with acquisition. Cost is one of the major drawbacks of acquisition and this cost is referred to the cost of acquiring a firm, making formal deals with the board of directors and retaining the workers. Another drawback is of hostile takeovers, this may result in spoiling the company's image and losing the loyal customers of both the organizations. Implication of tax is also a drawback of acquisition but this tax implication does not always result in a drawback. It mainly depends upon the revenues of both the organizations. Some organizations collide with low revenue generating organizations, in this case tax implication is not considered as a drawback. Apart from this, another drawback is related to market research. It is because when two organizations combine with each other, the market size automatically expands, thus, it becomes imperative to research the entire market from scratch (Sherman, pg. 67, 2011).
Strategy adopted by E-bay for growth in China
E-bay is the world most popular online trading business center, which has its roots in the best countries of the world. E-bay adopted the strategies of acquisition and alliance to enter China. Since China was a country in which internet flourished highly and most of the people were highly aware of e-commerce, therefore, E-bay's decision to enter China was an effective decision. Apart from this, the strategy adopted by E-bay to enter China was also an effective strategy because there was a huge competition over there and it would not have been possible for E-bay to enter into China by any other means.
E-bay was aware of the fact that there are number of risks associated with the entrance in China such as corruption, slow speed internet, currency issues etc. Due to this reason, the first step taken by E-bay was tremendous because at the initial stage it did not fully enter into the new country but, it invested in the first online auction website of China named as Each Net in the year 2002. After that, Each Net modified certain features of E-bay in accordance with the Chinese market. After noticing the success, E-bay took a clever step of investing more in Each Net and this acquisition gave great success to e-bay in the Chinese market. In addition to this, the alliances of E-bay with the greatest internet portals also proved as a tool for its success. These portals were Sohu, Net Ease and Sina.
Though E-bay initially achieved great success in China but due to the presence of a large number of competitors, a…