The rodents include primary lighting and lighting fixtures. These products are fully developed and have a wide range since 2006. This acquisition would be manageable if both sides are willing to cooperate and work together. With any acquisition come potential risks. These risks include Financial, Diversification, Cultural, Management, and Knowledge. Each risk requires individual attention and should be looked at and considered. When one has risks they should be weighed in order to determine whether the decision will prove profitable. The first risk is financial risks. The acquisition of Sylvania would cost over $200 Million.
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This would be a hard financial risk to overcome. Dealings with banks, such as Deutsche Bank, would always be a difficult situation. This then leads to interest as well as dependability on the money loaned. Loaned money is difficult because the money in which needs to be paid back to these banks. If Sylvania fails or does not make the profits wanted from Hovels, this will make it hard for Hovels to pay back the money loaned to banks. The next issue is when you acquire a company you acquire the debt and everything associated with it. Sylvania is considered to have a high debt ratio.
The next risk to look at would be the diversification risks. This would include the products offered by the new companies. Hovels deals with Electrical Components (switch gear) and Sylvania deals with lighting. These products are extremely different but are associated in the same market. This will prove to be a risk because one is unfamiliar with the other. If one works with the other in the understanding of each product that is offered they can make the partnership work. Another risk they will face is Cultural. Hovels is an India based company whereas Sylvania is South American and Europe. Cultural always becomes a factor.
This is where ways of doing business, understanding of each other’s business customs in order to acquire new business comes into play. Internally it can become difficult for these companies to communicate. Misunderstandings make it difficult for people to get along and cooperate. Nail the now head of Hovels was quoted saying, “Their (Sylvania) approach was, these guys from India don’t understand Europe. ” (Goal, 2010). This shows that there is frustration and the comprehension of one another’s culture are lacking. The next issue to be looked at is Management. This includes the lack of understanding of one another’s companies.
Since Hovels is Electrical components and Sylvania is lighting, the difference in products are difficult to overcome. The next issue would stem back to the culture aspect. This deals with the style of operated company; while Sylvania is more of a standardized management style leaving family out of the picture. Knowledge is another issue Hovels and Sylvania would face. This includes majority of the issues spoken about earlier. The knowledge issue could be the difference in products, or understanding of new market information. Another knowledge based issue would be knowledge of culture which includes location, personalities or customs.
All of the risks spoke about what challenges the new and current management would have to face. An action plan in order to face these challenges would be for the company to sit down in order to understand each other. This would include going over culture, knowledge of new markets, expectations of what they want to accomplish, and understanding of new management styles. If Hovels wants to be successful in the acquisition they need to find the answer in whether all of the goals can be meet. Understanding and building trust will have to be the first obstacle to overcome prior to the companies doing business together.
When looking at the buyer power Hovels will increase this tremendously. The choice offered by Hovels would be the new lighting products from Sylvania. These new products will increase the choice, and size of the buyers. Along with an increase of choice and size comes an increase from the company in products, and volume of the products sold. New market entrance of Hovels would be not as important in some aspects but important in others. The entry barrier will be coming up with a new strategy to enter the already occupied markets as a new and collaborated company.
The geological factors of these new markets also make it difficult for each company because they are both based in separate areas, with separate customs. The routes to the market are an upside for Hovels because each company has already established these routes and now get to utilize them more effectively together. Supplier power for Hovels will remain as the current operation, which would be an upside. The only difference would be that the geographical coverage would adding process/capabilities. The product and technology development could go either way.
If Hovels can effectively continue to innovate along with Sylvania this could be beneficial. It will go through the regular changes that any product would in the aspect of technology and innovation. Again, this will stem back to the relationship of each company. Competition and Rivalry will increase for Hovels as a whole because of the acquisition of Sylvania. They bring the new competition with their different product offerings. This of course would be a downside. An upside to the situation would be he increase in the size of the Hovels Company in order to take on and eventually delete the competitors such as GE and Phillips.
There differentiation and strategies will have to change for the fact that they are bigger and now into more differentiated products. Recommendation To succeed in acquisition, Hovels need to build a strategy to prevent each potential risks. Consider the preparation of all finances. This would be reviewing finances in order to make sure they do not Jump into something that they potentially cannot afford. If they in fact feel that they have the finances in order to move on with he deal they will have to look at other potential risks.
This would include the knowledge aspect of the case. They must understand everything as a whole. This includes a lot starting with the operation of each company; the company’s background each offer as well as new location. The products are also a huge aspect of the new deal; the diversification of new products as well as the basic workings of each product. If the company as a whole sits down in order to review and understand one another this will force positive communication and hopefully yield understanding, motivation and eventual success.