Differentiation through M&A – Series M&A Strategy 8
Buying your Competency
No matter if you’re a freelancer or a company, competency is probably the most important factor for survival in the world of business and building your competency takes time and effort. But what is you can buy the competency you want and use it to accelerate your business? We’ll talk about some of the competencies you can acquire through M&A and how you can use them to strengthen your business.
The most effective way to gain advantage against your competitors is to acquire the “brand” that is recognized among the potential clients. What we mean by ‘brand” does not neccessarly need to be something famous like “Hermes” or “Chanel” but rather a trusted product or service in that certain industry.
A good example of this is the acquisiton of IBM’s “Think Pad” by Lenovo in 2004. At that time, Lenovo was already the no. 1 PC manufacturer in China but couldn’t break the barrier as a global player. It is certain that Lenovo’s current success in the global PC market was not possible if they hadn’t acquired the brand “Think Pad”, which is still used and loved by many business people in the world.
Doing business in certain industries require permissions or qualifications, and in Japan, a good example would be the construction industry. In order to qualify for bidding in the construction industry, the company not only needs certain permission but also certain company records to prove that you’re capable of getting the job done without problems. Another example is the finance industry. The code given for your operation permit given by the government represents the number of years that company has been in operating in the industry and the lower the code, the more credibility you have, giving advantage in interest rates etc.
The point is, if your business doesn’t have much history or records, you can buy the time necessary and gain the value that could take years or decades to reach if you were to do it on your own through acquiring a company with such assets.
Knowledge is another competency that you can gain through M&A. For example, your company is not making the breakthrough necessary to develop a certain type of product, you can acquire the technology or engineers through buying a company. There are many cases where Chinese and Korean companies bought certain business division from a Japanese company through M&A and has proven that it is an effective strategy to gain a competitive edge, even for SMEs.
But you must be careful with where or who actually has that knowledge. In one case where our client was considering of buying a manufacturer, it turned out that it wasn’t the target company that had the actual knowledge for the product but was the supplier. We were able to figure it out during the due diligence stage but you should be careful since knowledge is not something visible.
In this series, we’ll explain why M&A can not only save many SMEs in danger but can also be a handy tool to strengthen your business quickly and efficiently.
To learn more about M&A for SMEs in Japan, don’t forget to checkout this book. (only available in Japanese)