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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.

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Introduction

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.

Middle

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.

Conclusion

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.

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