• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

This paper will briefly analyze Hydros acquisition of Vale in Brazil by using relevant theory. First, the OLI-paradigm will show why they chose a FDI, then we will focus on the type of strategy they follow, and lastly, why they chose an acquisition.

Extracts from this document...


This paper will briefly analyze Hydro's acquisition of Vale in Brazil by using relevant theory. First, the OLI-paradigm will show why they chose a FDI, then we will focus on the type of strategy they follow, and lastly, why they chose an acquisition. Hydro's acquisition of Vale was a strategic move in order to gain access to primary resources. The acquisition gave Hydro access to alumina and bauxite from the world's second-largest mining company. The deal had a mutual outcome; Hydro received majority shares in Vale's bauxite extraction, alumina refining, and aluminum production, as well as a workforce of 3600 employees, whilst Vale received a cash payment of 6 billion and a 22% ownership stake in Hydro (Hydro website). The eclectic OLI-framework by John Dunning (1977) provides a framework for understanding MNE's decisions on FDI's. The decision on extracting and producing bauxite and alumina abroad implies that Hydro had ownership, locational and internalization advantages by acquiring Vale in Brazil. The ability to achieve lower costs by using transferable assets without reducing their effectiveness, like technological know-how, leads to firm-specific advantages. ...read more.


The largest minefields of bauxite were present in Australia and in Brazil, but due to arbitrage-opportunities and low-cost labor, enabling Hydro to gain supply-chain advantages, they chose to locate in Brazil. If Hydro combine and integrate two of the proposed strategies correctly, it can broaden its perceived opportunities and enhance global performance (Ghemawat 2007:12). The strategy was a good fit organizationally, giving Hydro direct control over an important part of the value-chain (Hydro lecture). The Hydro-Vale entry mode was an equity-based acquisition. Key explanatory variables for increasing the probability of Hydro choosing acquisition over a Greenfield investment are degree of product diversification, relative size of investment, foreign experience and time of investment (Harzing 2002). Hydro had been present in Brazil for several decades - although not present within bauxite extraction - and had high level of foreign experience due to their international operations. This was the largest investment made by Hydro, including transfer of 3600 employees, and the process of acquisition was planned over years, thus increasing the probability of an acquisition as an entry mode. ...read more.


By considering strategic variables like size of investment and foreign experience, they chose acquisition as entry-mode. Acquisition gives higher degree of control, requires high resource commitment and low dissemination risk, and aggregation and arbitrage was central for Hydro's strategy. However, a too theoretical aspect of the acquisition may limit our insight the real world decision-making processes. Sometimes firms like Hydro doesn't have a choice about different entry modes, and thus have to choose the best amongst those available. The real challenge, however, will start with the post-acquisition integration of the firm. But that's a whole another story. Sources: Ghemawat, P.. 2007. "Managing differences: the critical challenge of global strategy". Harvard Business Review, Vol. 85 No. 3, pp. 58-68. Harzing, A-W.. 2002- Acquisition versus Greenfield investments: international strategy and management of entry models. Strategic Management Journal, Vol. 23 No.3, pp.211-27. Hill, CWL, Hwang, P and Kim, WC, 1990. An eclectic theory of the choice of international entry mode. Strategic Manage J 11, pp. 117-128 Reinert, K.A., R.S. Rajan, A.J. Glass and L.S. Davis. 2009. Foreign direct investment: The OLI framework. (eds.): The Princeton Encyclopedia of the World Economy, Volume I, Princeton: Princeton University Press, 2009, 472-477. ?? ?? ?? ?? Page 3 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Management Studies section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Management Studies essays

  1. ITC - diversification strategy

    Additionally, a demographic shift towards value added products and its last mile reach for the rural areas justified the entry into the FMCG-Foods business. However, high incubation costs including rentals, marketing expenses and competition from the incumbents coupled with current downturn has delayed the break-even point.

  2. Rayovac Global Strategy

    This is a number one brand in U.S and its products are sold in 20,000 retail outlets in U.S. 2004: Ningbo Baowang Company in Ninghai, China, for a cash price of $17 million plus $14 million in assumed debt which helped Rayovac to penetrate the growing market in china.

  1. corporate global strategy

    society, in ways that are economically, socially and environmentally viable, now and in the future. Corporate Strategy "Our strategy is: regaining upstream strength and delivering downstream profits; improving performance across all our activities; and creating what we call an 'Enterprise First' culture.

  2. SWOT Analysis. The objective of the paper is to analyze Toyota and Honda ...

    The passenger car is the second biggest segment, and there is fierce competition in this market. The current sub-segments which are big size, mid size and small size vehicles already have many key players such as Toyota, Honda, Nissan, Ford, Mazda, Mercedes Benz and BMW.

  1. Case Study - Why did Kennecott buy Peabody? Was the acquisition successful in achieving ...

    Rather, it subtracts out the profit retentions that Corborundum will keep to support its growth even though Kennecott will own 100% of the equity in Carborundum. Additionally, to get to the FCF that should be used in an APV analysis, one must take Net Income and add back tax-adjusted interest

  2. Contemporary Business Issues - the main two topics I will discuss in more depth ...

    An article I found in the Financial times, ?Government green light boosts low carbon vehicle market? written by Chris Tighe and Andy Bounds. The article is all about electric vehicles. Grey charging posts are being put up in roads and in parking bays in NE England and although they do

  1. Business Strategy and Economical analysis of Danone

    The marketing of Benecol® is led by an EFSA approved claim, and thus better engages consumers with the product, notably those who are sceptical of the health benefits of functional foods and probiotic yogurt drinks. ‎(6) 4.3 Segmentation and Targeting Recommendation ________________ In the authors points of view by changing

  2. The analysis of acquisition between Nestle and Hsu Fu Chi and Hsu Fu Chi's ...

    Moreover, owing to Macro-economic Control, china has avoided most of the more tumultuous upheavals that its regional neighbours have faced,such as 1997 Asian financial crisis, and Subprime mortgage crisis(Liang-Xin,2010). Political stability provides a safety environment for Nestle to run its business and expand market share in Chinese confectionery market. 3.1.2.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work