STRATEGIC ALLIANCE VS. M&A
Teaming up and combining forces with others can be very useful when a company intends to enter new markets quickly and efficiently. In today’s business world there are several ways to start a cooperation with another company, such as Strategic Alliances and Partnerships, Joint Ventures, Mergers and Acquisitions.
Although some of these terms are often used interchangeable it is important to understand that are quite different regarding the necessary investments, ownership and control over the company, the legal structure, risks and other commitments and responsibilities.
Strategic Alliances are mostly preferred when immediate growth is not a main concern for a business and where companies are able to take advantage of each other’s capabilities and still retain full control over their own company. It is therefore the less risky approach in a cooperative undertaking when entering a new market. Especially smaller companies that don’t have the financial backing and power to simply acquire another company decide to expand their business based on this concept.
However, it can be quite difficult for a foreign company to find and convince another company in Asia to do business with them. The reasons for this situation are lack of interest, mistrust, cultural differences and varying levels of understanding regarding the potential benefits. It is therefore advisable for companies to contact a local expert who is familiar with the market environment and able to support the companies throughout their search and negotiations.
Merger & Acquisitions on the other hand are chosen when urgency comes into play and where money with a certain level of risk-taking is no real concern for a company, given the fact that the failure rate of M&As is estimated to be well over fifty percent. In this connection, it should be noted that mergers are less common in Thailand as these deals need to comply with local laws and time-consuming approval procedures, which can become quite complicated and burdensome.
For this reason the acquisition can be considered the more popular approach for companies to achieve growth for their business, where a company obtains the control of the other company simply by buying all or at least the majority of the targeted company’s shares, in most cases of a smaller competitor or supplier of the acquiring company.
Through the acquisition of the competitor the acquiring company will immediately obtain a certain market share in this country and further have the opportunity to quickly grow its market share with its own products through leveraging the existing dominance and marketing and sales expertise of the acquired company.
The situation differs when a company decides to buy one of its suppliers since the main reason for the acquisition is not to obtain a market strength in the foreign country but to significantly reduce the purchasing costs for its products and to eliminate a potential bottleneck of critical materials or components for its own production at home.
However, there has been a rising number of acquisitions over the past years where companies in unrelated industries buy promising technology and software start-ups in Asia for the purpose of a strategic business transformation and to position themselves on the market in the future. E-commerce, Fintech, AI, IoT and Cyber Security are just some of the words which are associated to this trend.
With regard to acquisitions, it should nevertheless be mentioned that there are certain foreign investment restrictions for private and public companies in Southeast Asia and which differ from country to country. If you don’t know which approach is the right one for your business then don’t hesitate and talk to us today. Our analyst will help you to dig deeper into the market and provide professional support and solutions to find the right partner for your undertaking.