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In order to meet cross-border growth objectives over the next three years, CEOs have to deal with a lack of capital, extremely tight credit and uncertainty about company valuations.
"I don't feel we have lost our ability to be acquisitive and to grow like-for-like sales or same-store sales… We certainly have a combination of acquisitions, some of which have performed well above expectations and others that have not. This is the period to go back and evaluate each one of those and determine what to do to correct them."
Chip Hornsby
Group Chief Executive
Wolseley plc, UK
As a result, many expect to depend more on collaboration in the form of joint ventures and strategic alliances than on mergers and acquisitions (M&A). The percentage of CEOs who believe that joint ventures will play a greater role than M&A in cross-border growth has surged since 2008.
Last year's survey found that most companies were using collaborative business relationships, such as joint ventures, opportunistically. It suggested that a more strategic approach would emerge. This year, many CEOs say that they are already collaborating with most major stakeholders, including supply-chain partners, providers of capital, and industry peers.
The increased collaboration with business partners may be a strategic choice in many cases, but in others it may be the consequence of a lack of availability of capital in the current market. Joint ventures and strategic alliances may reduce cultural conflicts, but they also typically cost less and require less funding than an outright acquisition.
In the long term, however, they may be less stable and ultimately more costly because control is divided among partners and strategic objectives can never be totally aligned. This argues for adding more rigour to the strategic evaluation, execution and governance of alliances, including a more thorough evaluation of potential risks. For example, the business case could be "stress tested" through scenario planning that considers worst case scenarios. One of the obstacles to better scenario planning is a lack of comprehensive information about many of the critical business drivers.
This lack of information may be one reason why companies have not made progress in the major obstacles towards successful M&A, suggesting that these deals need more care as well. Twenty-five percent of CEOs still believe that M&A will play a greater role in cross-border expansion than JVs and strategic alliances over the next three years, but more CEOs are confronting the challenges of unexpected costs and cultural conflicts.
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