Stiff competition has forced automobile companies to come up with better strategies that will help them compete successfully. Bankruptcy and economic crisis has threatened the existence of automobile industry. In order to create synergy, firms are trying to expand their operations through mergers and acquisition. A perfect example is Fiat, an Italian automobile firm planning to acquire close to 35.0% of Chrysler Company. There are also plans for the firm to take over General Motors units such as Opel. Organizations need to make decision on whether to grow through acquisition or organically. The paper critically looks at the challenges associated with growing via acquisition versus growing organically.
It is worth noting that one of the issues related to growing via acquisition is related to inheriting financial and management problems. In situations where a firm is thinking of acquiring another company associated with financial problems and management problems, it is highly likely that the acquiring firm will have to sort these issues. In the long term, this may divert the attention, efforts and resources to such initiatives hence jeopardizing its strategic operations.
In addition to these, there is an issue of customer loyalty. Business entities have a set of loyal customers. When a firm acquires another business entity, there is likelihood that the loyal customers of the firm being acquired might not be comfortable doing business with it. Ideally, it will take long and enormous resources to create a new batch of loyal customers. In practice, the resulting firm will need to carry out an extensive research concerning new customers. This will help the firm to have an understanding of who the customers are, what are their preferences to mention but a few.
Another challenge is related to cultural differences. It has been established by scholars that culture is an important contributor to a successful organization. For instance, it is culture that determines the manner in which a firm treats its customers, employees, suppliers, distributors among other stakeholders. It is chaos when the involved firms in acquisition are from different geographical and cultural background. For instance, the work environment in Italy is not closely related to the one in United States. For this reason, it will take great effort to harmonize the cultural issues in order for the new firm to successfully conduct its daily activities.
Compared to organizations that grow through acquisition, those that grow organically, the later will evolve and expands its operations gradually. For this reason, it is possible for the firm not to experience serious issues due to complexity in size, culture among others. It is worth noting that a firm will grow with the same culture, same client base as well as mode of management. A greater challenge linked to acquisition and mergers is related to operating in a large organization. Although there are economies of scale associated with a large organization, it is likely that bureaucracy can emerge in order to streamline operation. The danger with this type of environment is decreased flexibility and adaptability.
In my view, I strongly believe that diversification is a good concept that can help Fiat to cushion itself during unpredictable times. However, over-diversification can be dangerous. Already, the firm is engaged in a wide range of activities. Acquisition of a new firm might force it to allocate fewer funds to research and development; this will later kill innovation and possibility of developing new products.