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4 Apr 2021 
Claude 
Firms need to grow to attain their goals, which include increasing revenue, increasing sales, or maximizing profits. One of the methods used by firms to achieve growth is building through internal development. The company is supposed to retain enough profits that enable it to purchase new assets. Secondly, companies attain growth through borrowing, which is by entering into contracts or forming a strategic alliance. Lastly, by buying, the firms acquire new resources, competencies, and capabilities.
However, the main concerns in the build-borrow-buy framework include closeness, integration, relevancy, as well as traceability. The organizations’ internal resources need to be relevant for the corporation to develop internally. The relevancy of the resources is determined based on its similarity with the needs of the company; they are powerful than that of the firm’s competitors and sit the VRIO framework. Besides, the tradability of the company allows for ownership transfer and utilization of the firm’s resources. Created contracts will enable firms to borrow resources, for example, franchising. In terms of closeness, it is attained through alliances such as joint ventures, equity alliances, which allows borrowing of resources. However, mergers and acquisitions are costly and complicated and are utilized when extreme closeness is required. On the other hand, the following conditions are considered to integrate a target firm; low tradability and relevancy as well as high closeness.
Strategic alliances are the agreement between two or more firms to pursue an agreed set of goals. This process entails the sharing of resources, capabilities as well as the knowledge that is needed in developing products, services, and processes. However, strategic alliances are very attractive because of its advantages to the firms involved. Goals are attained fasters, and at lowered costs, since firms augment the value-chain, its legal complexity is less. Also, it helps firms to gain and sustain their competitive advantage over other firms.
Furthermore, there are sever reasons why firms enter into a strategic alliance. First, it strengthens the firm’s competitive positions by changing the industry’s structures and influencing standards. Secondly,
Non-equity alliance implies a partnership rooted in contracts, whereas equity alliance implies one partner is taking partial ownership of the other. However, joint ventures are a business arrangement that joins two or more firms to accomplish particular objectives.Alliance design and governance are vital as it determines how long the partnership will last. The following are the governance mechanism employed; equity alliances, joint ventures as well as a contractual agreement. However, for post-formation of alliance management, the combinations for the creation of VRIO resources include making specific investments, establishing a routine of sharing knowledge and building interfirm trustMerging is the process of bringing two independent firms together forming a combined entity.
Acquisition is the takeover or purchase of one organization by another organization, but it can be unfriendly whenever the target organization does not want to be acquired.Horizontal integration is a way of merging and acquiring competitors. However, this process has its benefits, such as it reduces the intensity of competition, leads to increased differentiation, and also lowers costs. The table below shows the value creation sources and the horizontal integration cost.
On the other hand, there are several reasons why companies want to acquire others. First, the company wants a new market and distribution channel access so that is can beat entry barriers and access new competencies. Also, companies want to preempt their rivals so that they can dominate. A good example of companies that used this strategy is Google and Facebook.Generally, most M & A do not establish a competitive advantage, and it does not realize the expected synergies. However, mergers take place as a way of beating the competitive disadvantage and principal-agent problem. As such, it is an incentive by managers to acquire other companies to develop a bigger empire and to receive prestige, pay as well power. Besides, it is an unrealistic belief by a manager (manager hubris) to bidding for firms to manage. These managers believe in having superior skills and are an exceptional rule. This is the reason why managers invest more in mergers that generate no profits on average.