Capturing The Real Value Of High Tech Acquisitions - Free Essay Example

Sample details Pages: 23 Words: 6969 Downloads: 4 Date added: 2017/06/26 Category Statistics Essay Did you like this example? The fast rate of technological change was one of the most important trends in the 1990s and this brought an increasing complexity and cost to the development of new technologies. Companies used their innovative assets as a major source of competitive advantage to quickly introduce new products and adopt new processes (Sen and Egelhoff, 2000). Acquisitions are completed in many industries for reasons that are aligned with the dominant competitive driving forces for that industry. Don’t waste time! Our writers will create an original "Capturing The Real Value Of High Tech Acquisitions" essay for you Create order In the area of high technology and seminconductors, the competitive drivers are short product life cycles and process advancement. Process advances are required to both support the incremental changes to existing products and to allow the creation of radically new one. The number of acquisitions rapidly increased through the decade for several reasons: the product life cycle was getting shorter; participating in the creation of industry and product standards was crucial; early entry helped capture market share; and R D risk could be reduced. Hagedoorn (1993) found the reduction in innovation time and acquisition of needed technologies as the most important reasons for one company to pursue another. Several researchers have written about the radical and incremental innovation capabilities, their distinguishing factors and the important consequences to the corporation. It has also been argued that large firms are effective with incremental innovations and small firms are better at rad ical innovations. (Ettlie, Bridges, and Oà ¢Ã¢â€š ¬Ã¢â€ž ¢Keefe, 1984; Dewar and Dutton, 1986; Christensen, 1992). Corporate decision to acquire or not acquire another company embodies a high level, serious management strategy decision toward repositioning a company in the competitive landscape. The decade from 1990 to 2000 was chosen as an important time for acquisition activity. There was frequent activity in acquisitions during a time of stable economic conditions creating good conditions for analysis. In 1990, the dollar value of all acquisitions and mergers in the United States was two percent of the Gross Domestic Product (GDP). In 2000, the value reached over 15% of the GDP (Mergerstat, 2003). In the first 10 months of 2000, in the technology sector alone, there were 2,019 acquisition and merger deals worth $573 billion (Reason, 2000). This occurred despite studies done in the 1980à ¢Ã¢â€š ¬Ã¢â€ž ¢s and 1990à ¢Ã¢â€š ¬Ã¢â€ž ¢s that found little positive effect financially for the acquiring company. The magnitude of the activity strongly suggests that some positive relationship could be fo und if examined in a different way or using new metrics. This research uses a different methodology by exploring a single industry, selecting profitability growth as the metric from theoretical industry driving forces and analyzing profitability over time as a statistical repeated measures model using SPSS software. The results from this work may have strategic implications for remaining competitive in high technology, high-velocity industries. It should be noted here that the term acquisition, mergers and acquisitions and M A will be used interchangeably in this research and are defined in Appendix A along with other important terms. In high technology industries, such as semiconductors, a firm interested in new product innovation must aggressively invest to stay at the leading edge. Creating or acquiring new offerings can be dependent on a combination of efforts directed either internal or external to the company. Internal efforts include primarily Research and Development (R D) or newly formed affiliates, termed à ¢Ã¢â€š ¬Ã…“greenfieldsà ¢Ã¢â€š ¬? (Vermeulen Barkema, 2001; Sonenclar, 1984; Bradley Korn, 1981). External efforts can take the form of acquisition or mergers to best capture the intellectual property (IP) that is maintained in the categories of trade secret and proprietary know-how. Acquisitions, when done well, appear to have the advantage of capturing this kind of IP as compared to the other forms of external efforts. Acquisitions also potentially offer faster repositioning with less risk and lower cost than pursuing internal company endeavors (Singh Montgomery, 1987). A high technology com panyà ¢Ã¢â€š ¬Ã¢â€ž ¢s success hinges on creation of innovative ideas, availability of creative personnel, speed of new product execution and cost effectiveness. Mergers and acquisitions are a highly favored management avenue for growth and competitive positioning. The importance of this management consideration and the impact of mergers and acquisitions continue to expand with billions of dollars involved. The importance in the technology sector becomes apparent when looking at the 724 firms that made their initial public offering (IPO) in 1992, but were not acquired or merged. Of these companies, 58% were selling at less than their IPO price six years later (Small Business Statistics, 2000). Product and service offering must constantly evolve and change (Thompson Strickland, 2001). High velocity innovation is fundamental to the growth and survival of high technology businesses. Organizations that are successful have a regular stream of unique products and services. Hewlett-Packard had over 50% of revenue in 1999 coming from products introduced in the previous two to four years. In high technology companies, the highest profit levels come from the newest products. Consequently, it is imperative to accelerate the innovation cycle, often through mergers and acquisitions, and this is critically important to remaining competitive. Entrepreneurial firms consistently outperform larger firms in both market and earnings growth on the Inc. 500 and Forbes 200 lists (Imparato Harari, 1994). There are several potential reasons for making an acquisition that have been identified and studied in the literature. In addition to the reasons for actually acquiring, there are a number of factors following the event that will influence the degree of success or failure that these efforts may experience. These elements that play a part in determining the outcome have been the focus of studies that are summarized in the Literature Review. WHAT MAKES HIGH-TECH COMPANIES AND THEIR ACQUISITIONS UNIQUE Both the popular business press as well as recent academic research seems to uniformly accept the unique nature of high-tech stocks. Kohers and Kohers (2000) state: à ¢Ã¢â€š ¬Ã…“The high-growth nature of technology-based industries distinguishes them from other types of industries. In addition to their high-growth potential, however, another distinctive feature of high-tech industries is the inherent uncertainty associated with companies whose values rely on future outcomes or developments is unproven, uncharted fields (p. 40). In fact, many à ¢Ã¢â€š ¬Ã…“pureà ¢Ã¢â€š ¬? technology stocks are young companies, underfunded and without prospects for generating any cash flows in the near future. Nevertheless, despite the inherent uncertainty of high-tech industries, investors seemed to disregard most equity fundamentals when valuing technology stocks, especially during the market upturn in the late 1990s. As a result, even though high-tech stocks were in general extremely volatile, many of them were trading at remarkable premiums. The exploding rate of growth in M A activity that involved high-tech industries can be partly attributed to those overly optimistic valuations. Puranam (2001) argues: à ¢Ã¢â€š ¬Ã…“On the acquirerà ¢Ã¢â€š ¬Ã¢â€ž ¢s side, booming stock market valuations have made acquisitions for stock feasible for several relatively small (revenue wise) firms, as well as the more established larger ones. On the targetà ¢Ã¢â€š ¬Ã¢â€ž ¢s side, an increasing preference for the ready liquidity offered, by an acquisition, as opposed to the paper profits from an IPO have created an environment conducive to acquisitions of small start-upsà ¢Ã¢â€š ¬?. At the same time many of these acquisitions were also motivated by the acquirerà ¢Ã¢â€š ¬Ã¢â€ž ¢s need to obtain critical technologies and expertise in order to quickly enhance their own technological competence. Despite the burst of the high-tech market bubble and the failure of most of these acquisitions, investors continue to show an extreme faith on these stocks. à ¢Ã¢â€š ¬Ã…“Americans still believe that technology can create a better world. Each time the U.S. tech sector falls into a trough, new technologies and companies emerge to lead it forward againà ¢Ã¢â€š ¬? (Business Week, August 27, 2001). PROBLEM MOTIVATING THIS STUDY This research effort seeks to understand the relationship between acquisitions and profitability by looking at the industrial sector for high technology semiconductor companies. Many prior studies have shown little financial benefit to the acquiring company in research conducted beginning in the 1980s and extending to today using a variety of variables, measures and company sample selection. These studies will be discussed in more detail in the Literature Review. The researchers Rumelt (1984), Ravenscraft and Scherer (1987), Porter (1987) and Kaplan and Weisbach (1990) separately found that acquisitions that could be categorized as unrelated, or diversifications, did not lead to profitability improvements, but most of these studies obviously included a cross-section of divergent industries. The importance of innovation and new products in high velocity, competitive environments is discussed in literature and high velocity innovation is fundamental to the growth, profitability and sur vival of these businesses (Thompson and Strickland, 1999; Betz, 2001; Burgelman, Christensen and Wheelwright, 2004). The competitive advantage of capturing intellectual property through acquisition has also been discussed more recently. More clear evidence is beginning to emerge concerning the drive to acquire technology and the unique features of doing so (Prentice Fox, 2002). This research examines the correlation between the event of acquisition and subsequent company performance and growth of profitability in the decade of 1990-2000. Practicing managers in the area of management of technology are faced with the challenge of high velocity innovation being a requirement to maintain competitive positioning (Thompson Strickland, 2001). Two methods for constant innovation include internal efforts, such as Research Development (R D), and external efforts, such as acquisitions, on which this paper focuses. Prior studies have been cross-sectional across different industries and analyzed the benefits gained in terms of patents and R D (Bettis 1981), stock price (Matsusaka, 1990; Schleifer and Vishny, 1990; and Lubatkin, 1982) or increase in company size versus the cost of acquisitions. These studies have not captured one of the most unique features of the high technology industry where innovation and new products are dependent on intellectual property (IP) that is maintained in the categories of trade secret and proprietary know-how. Because of this characteristic, the high technology industry would be expected to yield different results. The importance of IP and know-how has been an area of academic focus working to clarify the concept of à ¢Ã¢â€š ¬Ã…“absorptive capacityà ¢Ã¢â€š ¬? in the 1990s, but empirical work to tie these concepts to firm performance was not pursued (Cohen and Levinthal, 1990; Barney, 1991; Prahalad and Hamel, 1990). The use of patents as a measure, as used in prior research (Acs and Audretsch, 1988; Pakes and Griliches, 1980; Hitt, Hoskisson, Ireland and Harrison, 1991), does not capture the IP benefits in these categories or measure the success resulting from these external efforts. Acquisitions, when done well, should be expected to have an advantage on capturing this kind of IP. Acquisitions potentially offer faster positioning with less risk and lower cost than internal company endeavors which include primarily Research and Development (R D) (Gulati, 1995; Singh Montgomery, 1987). STUDY OVERVIEW This research effort focuses on one high technology industrial sector of semiconductors and studies the correlation between acquisitions, profitability, survivability and RD intensity over time. Many prior studies (Rumelt, 1984; Ravenscraft and Scherer, 1987; Porter, 1987; and Kaplan and Weisbach, 1990) have shown little financial benefit to the acquiring company, but most of these studies included a cross-section of divergent industries. The importance of innovation and new products in high velocity, competitive environments is widely discussed in literature. High velocity innovation is fundamental for the theory of growth, profitability and survival of these businesses. The competitive advantage of capturing intellectual property through acquisition has also been discussed more recently. More clear evidence is beginning to emerge concerning the drive to acquire technology and the unique features of doing so (Prentice Fox, 2002). This paper researches the correlation between the ev ent of acquisition and subsequent company performance, survivability, the growth of profitability and R D spending. CHAPTER 2 LITERATURE REVIEW ON HIGH-TECH COMPANIES Most research on high-tech companies is relatively recent and has its origin in various business fields. Chaudhuri and Tabrizi (1999) study the practices of 24 high-tech companies involved in acquisitions, and try to identify the key factors in capturing the real value in high-tech acquisitions. They conclude that in order to make a successful acquisition managers need to move beyond the traditional model of acquisitions where the people acquired are secondary to physical assets and brands. High-tech acquisitions need to focus on the people since technological capabilities tied to skilled people are the key to long-term success in these industries. Arora, Fosfuri and Gambardella (2000) examine how the growth of markets for technology affected the corporate strategies of the leading companies, which can now sell technologies that they do not use in-house and increase their potential returns to R D. They argue that globalization, along with the low transportation costs of technologies, has made large R D intensive companies realize that they have the potential to exploit their technology on a very large scale by licensing. However, in deciding how to exploit their technology small firms and technology-based startups face a different set of challenges. According to the authors they need to trade off the costs of acquiring capital and building in-house production, distribution and marketing capability against the rents that would be lost or shared with their partners in a licensing deal. Also, the authors argue that integration may reduce the innovative potential of the firm, because the acquisition of the complementary assets in evitably increases the size of firms and induces important changes in the culture of the firm and in the speed and fluidity of information flowsà ¢Ã¢â€š ¬?. Finally, they claim that evaluating technologies and being able to use them requires substantial in-house scientific and technological expertise and therefore internal and external R D can be reviewed as complements and not substitutes. Liu (2000) focuses on a different issue by examining the marketsà ¢Ã¢â€š ¬Ã¢â€ž ¢ reaction to innovation news announcement made by the U.S. biotech firms during the 1983-1992 period. He finds that the average AR to the announcements is as high as 3.98 percent for a three-day event window and biotech stocks trading volumes almost double on the day of the news announcement. The announcement period ARs are negatively related to firm-size and underwriter reputation, while positively related to the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s technology depth as measured by R D intensity. However, during the months following the announcement the average three-month post announcement AR is 2.73 percent. The negative drift in stock prices appears to be mainly driven by the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s weak science and technology (less R D intensive), firms with high Book to Market (B/M) ratios and large firms. In explaining his findings the author proposes an à ¢Ã¢â€š ¬Ã…“expectation error hypothesisà ¢Ã¢â€š ¬?. According to this hypothesis it is hard for investors or even managers to precisely evaluate the economic value of innovations which in turn leads to the possibility of forming erroneous expectations. In high-tech industries the erroneous expectation is reflected in the investorà ¢Ã¢â€š ¬Ã¢â€ž ¢s over-optimism towards high-tech firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s innovation news. Eventually, the stock prices adjust itself to reflect the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s fundamentals, especially its technology depth. The author attributes the observed evidence to the costly information required to value a high-tech firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s innovation. Prentice and Fox (2002) provide a comprehensive review of the merger and acquisition process while focusing on the distinctive characteristics of high-tech companies. They argue that technology mergers are different from traditional mergers because of the importance that must be placed on people and their ability to innovate. Targets must be evaluated on intangible assets such as intellectual property and human capital. At the same time managers need to consider the issues of retention, culture and integration strategy from the beginning of the merger process to ensure success. There are two studies that are most relevant to this research. The first one is by Kohers and Kohers (2000) who examine the value creation potential of 1,634 mergers in the various high-tech areas between 1987 and 1996. They find that acquirers of high-tech targets experience significantly positive Ars at the time of the merger announcement, regardless of whether the merger is financed with cash or stock. Othe r factors influencing bidder returns are the time period in which the merger occurs, the ownership structure of the acquirer, the ownership status of the target and the high-tech affiliation of acquirers. They conclude that the market appears to be optimistic about such mergers and expects that acquiring companies will enjoy future growth benefits. The second related study is also by Kohers and Kohers (2001) who examine the post-merger performance of acquirers that purchase high-tech targets in order to determine whether the high expectations regarding the future merits of these investments are actually justified. Their results indicate that compared to non acquirers, acquirers perform poorly over the three-year period following the high-tech takeover announcement. Furthermore, glamour bidders show significantly lower long-run ARs, while value bidders do not experience significant post-merger ARs. Also, glamour bidders with a higher risk of agency problems show even worse post-merger performance while institutional ownership in the acquiring firm has a positive influence on acquirer long run ARs. Overall, the authors conclude that the market tends to exhibit excessive enthusiasm toward the expected benefits of high-tech mergers but many of these benefits do not materialize. CHAPTER 3 HYPOTHESES, METHODOLOGY AND DATA SOURCES STATEMENT OF HYPOTHESES Previous research in the literature has generally found little financial benefit for the acquiring companies that were associated with occurrence of the acquisition activity (Rumelt, 1974; Ravenscraft and Scherer, 1987; Porter, 1987; and Kaplan and Weisbach, 1990). Consequently, the first and second questions for this study are focused using the single industry of semiconductors, are stated in the null hypothesis format. First, firm profitability growth rates are compared in two groups, one that does acquire and one that does not. Secondly, individual firm profitability growth is examined before and after an acquisition event looking for a change in growth rate that is significant. Hypothesis 1 (H1): There will be no significant difference in profitability growth when firms making acquisitions are compared to firms not making acquisitions in the high-tech sector. Hypothesis 2 (H2): Acquiring firms making acquisitions are expected to have no significant change in profitability growth before and after the acquisition event. The literature yields less empirical work in analyzing the relationship between merger and acquisition actions and the longevity of a corporation. Theory certainly recognizes the close link between competitive capability and company survival. For the high technology industry of semiconductors, high velocity innovation is a requirement for remaining competitive. Research questions three and four are also stated in the null hypothesis format. Company longevity, or survival rate in number of year, is compared in two groups also, where one group does acquire and one does not. Lastly, an individual firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s spending rate on R D is examined before and after an acquisition event looking for a significant change in the rate compared to the trend for the company. Hypothesis 3 (H3): Firms making acquisitions are expected to have no difference in survivability in this industry than firms who do not make acquisitions. Hypothesis 4 (H4): A companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s R D intensity will show no significant change following the event of acquisition within this industry. SELECTION OF VARIABLES This research was conducted in a concentric approach by starting with one independent and one dependent variable initially to define the relationship and guide the next treatment in the study. As work continued, variables were selected and the methodology expanded to assess both within-subject and between-subject effects. The variables used in this study for Hypothesis 1 (H1) include profitability growth rate and a dummy variable to represent the presence or absence of the event of acquisition. The event of acquisition is represented by a dummy variable with a zero (0) representing no acquisition and with a one (1) representing an acquisition event. An acquisition event is identified by using a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s reported cash flows attributed to acquisition as stated in the Compustat database. The profitability growth rate is calculated from the total gross profit margin reported by year and cumulated over three years, then averaged to reduce fluctuations and facilitate identification of trends. The variables used for H2 analysis of profitability growth rate before and after an acquisition were the dummy variable for the presence of acquisition, the gross profit margin percentage (GPM %) calculated as a three (3) year cumulative average growth rate (CAGR) to smooth fluctuations and better identify a trend. This relationship was studied for three (3) years prior to the actual acquisition and five (5) years following the action. As the study progressed, a second dummy variable was used for company size to separate the effect of this independent variable as well. A repeated measures matrix was designed with two dummy independent variable as well. A repeated measures matrix was designed with two dummy independent variables, each with two levels and one dependent variable with repeated measures over nine years for a 2 x 2 x 9 repeated measures analysis using the SPPS software. The variables used for H3 analysis of acquisition relation to firm longevity were the acquisition dummy variable and the data from Compustat for the number of years that the company did financial reporting during the period of this study. H4 looks for the effects between acquisition and RD spending or intensity by using the acquisition dummy independent variable and R D intensity as the dependent variable. R D intensity is calculated using the R D expense reported as such by the companies and in the Compustat database. This Compustat item represents all costs incurred during the year that relate to the development of new products or services. This amount is only the company`s contribution and includes software and amortization of software costs and complies with Financial Accounting Standard Board (FASB) standards. This item excludes customer or government-sponsored research and development (including reimbursable indirect costs) and ordinary engineering expenses for routine, ongoing efforts to define, enrich, or improve the qualities of existing products. Methodology This study encompasses the time period of ten years from 1990-2000, inclusive. Semiconductor companies were selected as an entire group according to their NAICS/SIC codes. Using the Standard Poorà ¢Ã¢â€š ¬Ã¢â€ž ¢s Compustat database, there are 153 semiconductor companies included that were identified as à ¢Ã¢â€š ¬Ã…“activeà ¢Ã¢â€š ¬? companies at the end of the calendar year 2000 by Compustat. These companies are listed in Appendix B. Active reporting for one year. Companies are designated as à ¢Ã¢â€š ¬Ã…“inactiveà ¢Ã¢â€š ¬? and reclassified in the Compustat database when it is no longer actively traded on a stock market exchange due to bankruptcy, becoming a private company, leveraged buyout or merging. The research effort started with analysis one independent variable and one dependent variable in order to initially establish what the relationship was that existed, if it was significant and how to proceed with analysis. Exploratory work on Hypothesis 1 showed that there was a statistically significant and positive correlation between acquisitions and gross profit margin (GMP) growth broadly over the decade which differs from prior research. Hypothesis 2 moves toward a more detailed analysis of this finding. Consequently, in this chronology of discovery, the next step presented in Section 4.2 look at one dependent variable of profit margin growth and two independent variables of company size and acquisition activity. 3-way ANNOVA and regression treatments of the data are conducted using the data analysis tool available under Microsoft Excel Software looking at individual years in the ten year study period. The results show significance again and suggest that other interactions betwe en variables would yield additional understanding. The next step in the research was set up to look at one dependent variable, again gross margin (GPM) growth, repeatedly measured over time for each subject or company was entered for the nine (9) years 1995-2000 inclusive to capture acquisition effects giving 2 x 2 x 9 repeated measures design. The two independent variables were used in the dummy format with non-acquires given a code zero à ¢Ã¢â€š ¬Ã…“0à ¢Ã¢â€š ¬? and acquires assigned at one (1). Company size was the second dummy variable with firms less than $100M in sales per year coded zero (0) and if greater than $100M in sales, assigned a one (1). The statistical analysis using a repeated measures design analyzed the variable interactions and their relationship to GPM growth using the SPSS software. These results are presented in Section 4.5 Repeated Measures Analysis that was done using SPSS software. Descriptive statistics were an important first treatment of the data sets created. This includes the values for the following parameters: mean, median, range variance, standard deviation, kurtosis, and skewness. This treatment looks at characteristics of the data and the degree of normal distribution. The 3-way ANOVA investigations and regression treatment of the data were initially done using the data analysis tool software available in Microsoft Excel. Generally, the data sets for this study vary somewhat from the classical normal distribution, but ANOVA and MANOVA (multivariate ANOVA) within a repeated measures analysis are considered robust to violations of the normal distribution assumption (Maxwell Dealney, 1990; Stevens, 1996) SPSS Advanced Models 11.0 software was used to create general linear models of the data and conduct analysis of variance (ANOVA), regression, and analysis of covariance (ANCOVA) for the multiple variables in this model with repeated measures. The factors or independent variables were used to divide the population of 153 active semiconductor companies into groups. There were two independent variables used that were designated as dummy variables. The first variable of acquisition separated companies that did complete acquisitions from those that did not complete acquisitions during the decade of study. The second variable grouped the companies by size of sales at the end of the decade by either greater than $100 million or less than $100 million. Then the general linear model procedure was used to test the four null hypotheses, as stated above, regarding the effects of the independent variables on the dependent variable of gross profit margin growth as a repeated measure over the perio d 1992-2000. The investigation included looking at interactions between factors as well as the individual factors and the effects and interactions of covariates. This model specifies the independent variables as covariates for regression analysis. The SPSS repeated measures model creates a matrix for the sums of squares due to the model effects, gives the approximate F statistics and estimates parameters in addition to testing hypotheses. When an F test shows significance, SPSS performs post hoc tests to evaluate the differences between the means. This yields a predicted mean value for the cells of the model. Analysis of variance (ANOVA) was applied to named variables to study the portion of variance in the each variable that could be identified as explained and unexpected with regard to the event of acquisition. A covariance tool was also used when looking at the variables described above such as acquisition occurrence, company size and profitability growth changes. This compares whether the two ranges of data move together à ¢Ã¢â€š ¬Ã¢â‚¬Å" that is, whether large values of one set were associated with large values of the other (positive covariance), whether small values of one set were associated with large values of the other (negative covariance), or whether values in both sets were unrelated (covariance near zero). DATA SOURCES Standard Poorà ¢Ã¢â€š ¬Ã¢â€ž ¢s Compustat database was used for data collection in this research. The database contains fundamental financial, statistical and market data derived from publicity traded companies trading on the NYSE, NASDAQ, AMEX, OTC and Canadian stock exchanges. The calendar year for a company is the year in which the fiscal year ends and is the time period used as standard in this research. Companies with fiscal years ending in January through May are assigned by Compustant into the year in which the fiscal year begins. Companies with fiscal years that end in June through December are assigned to the year in which the fiscal year ends. The EDGAR (Electronic Data Gathering, Analysis and Retrieval) System database maintained by the United Stated Security and Exchange Commission (SEC) was also used. The EDGAR data is also collected from the same sources that are used to generate the Compustat database. Data from these controlled and verifiable sources were corroborated and augmented with information collected from semiconductor trade journals, company annual reports and the Mergers Acquisitions Journal that tracks statistics in this area. CHAPTER 4 RESULTS AND DISCUSSION HI à ¢Ã¢â€š ¬Ã¢â‚¬Å" ACQUISITON AND PROFITABILITY RELATIONSHIP A strong positive relationship was found to exist between the presence of acquisition activity and the growth in gross profit margin (GPM) by the end of the ten year study period. The statistical analysis is detailed below and is a departure from previous findings. This finding addresses the central question of this research endeavor to look for a relationship between acquisition events and profitability growth within the one industry of semiconductors. A positive financial effect is found and opens the path for additional analysis in this direction. Consequently, this information forms the foundation for the additional work presented in this research. ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON CHAPTER 5 CONCLUSION RESULT VERSUS HYPOTHESES The four hypotheses are stated again in Table 1 as a summary for ease of reference as results are discussed. Table 1. Statement of Hypotheses Summary Hypotheses 1 (Hi): There will be no significant difference in profitability growth when firms making acquisitions are compared to firms not making acquisitions in the chosen sector. Hypotheses 2 (H2): Firms making acquisitions are expected to have no significant change in profitability growth before and after the acquisition event. Hypotheses 3 (H3): Firms making acquisitions are expected to have no difference in survivability in this industry than firms who do not make acquisitions. Hypotheses 4 (H4): A companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s RD intensity will show no significant change following the event of acquisition within this industry. Corporate acquisitions in general have studied by researchers for many years. The researchers cited in this paper examined a sampling of industries through different methods using a variety of approaches and variables. These studies, however, did not focus on one industry using a measure tied to one of the most central theoretical driving forces for the industry. This research successfully analyzed the variable of profitability growth rate over time to model and explores the relationship between the presence of acquisition events and company performance for the high technology industry of semiconductors. Perhaps the most important outcome is the consistently positive and significant relationship found between the event of acquisition and profitability growth. This result ties to the central question of this research that sought to explore this area in a high technology industry using a different methodology and approach. The principal result of this research finds significant positive growth in the financial measure of profitability for firms that complete acquisitions. This finding is different from prior research in which positive financial benefits for the acquiring firm has generally not been found. The sample set focuses on a single industry and allows the selection of variables that reflect the critical elements of the competitive environment. Using a slightly longer time period for the measurement also made it possible to smooth fluctuations and use the strength of a repeated measures statistical treatment. This suggests that other research questions may benefit from using this approach. This research uses the established data sets to further analyze these elements. The initial research question looked at what relationship existed between acquisitions and profitability growth within one industry, semiconductors. Hypotheses 1 (H1) states that there will be no significant differences in profitability levels when firms making acquisitions are compared to firms not making acquisitions in the chosen sector. This research found a statistically significant relationship between positive gross profit margin (GPM) growth and a company performing acquisitions in both ANOVA and regression tests, allowing the rejection of the null hypotheses. The strength of this relationship was tested and corroborated in the multivariate and repeated measures analysis with SPSS software. This clear finding stands out from previous where other dependent variables were chosen as the proxy measures for positive financial gain as a result of acquisition and the time periods generally were less than the decade as selected for this research. Previous measures included items such as stock price, return to shareholders, sales, and assets as a brief summary of the studies covered in more detail under chapter 2 , the Literature Review Section. Other studies sought to measure positive intrinsic organizational effects and outcome associated with acquisitions such as the number of patents created, number of new products, executive turn over, R D effectiveness and number of customers gained. These elements play an important role in the overall management and success of a companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s actions and probably contribution to the degree of acquisition success, but this granularity is beyond the scope of this study. Hypotheses 2 (H2) states that firms making acquisitions are expected to have no significant change in profitability level before and after the acquisition event. This research found important statistically significant correlations between positive gross profit margin (GPM) growth over time and the independent variables of company size and whatever acquisitions were completed or not. Consequently, H2 can be rejected as the null hypothesis. The within and between-subjects effects were clearly strong and identified strategic time considerations also in the outcome from the multivariate and repeated measures analysis. Acquisitions bring a significant, positive profitability growth influence for both large and small companies. It is a clear disadvantage to be a non-acquirer in the semiconductor industry from a GPM standpoint over time. The additional importance of repeated acquisition is suggested by the data, but not included in this research. In the high velocity semiconductor industry, product life cycles average approximately 18 months. With the innovation cycle obviously spanning a slightly longer period, it appears that the three year mark post-acquisition is a key time for smaller companies. Perhaps because their internal resources in people or RD provide less absorption capability or smoothing than in larger companies (Burgelman, Christensen, Wheelwright, 2004). It is also expected that the interaction between internal RD, greenfields and regular acquisitions (Vermeucen Barkema, 2001; Sonenclar, 1984; Bradley Korn, 1981) would be an excellent area of study if limited to one industry for deeper understanding. Hypothesis 3 (H3) states, again using the null format, those firms making acquisitions are expected to have no difference in survivability in this industry than firms who do not make acquisitions. The literature contains less empirical work looking at merger and acquisition actions and the longevity of a corporation. Theory certainly recognizes the close link between competitive capability and company survival. For the high technology industry of semiconductors, high velocity innovation is a requirement for remaining competitive (Burgelman, Christensen, Wheelwright, 2004; Thompson, Strickland, 1999; Porter, 1987). Here, firm survival rates are compared in two groups also, where one group does acquire and one does not. Again significance is found showing a positive relationship between longevity and being an acquirer in this industry allowing the rejection of H3. This relationship presents opportunities to separate out the causality aspect of whether companies survive longer because t hey acquire more often or whether they acquire more often as a consequence of being older. Again significance is found showing a positive relationship between longevity and being an acquirer in this industry. Longevity in this case reflects a sustainable strategic position and its linkage to acquisition presence can imply that this is an important part of remaining competitive. Surviving longer in a highly competitive situation usually means that a company is doing things better than the competition. A significant relationship is found for this industry between the activity of performing acquisitions and being in business longer. The recommendation can be made that semiconductor companies should consider acquisitions as part of their competitive strategy, certainly in cycle of growth for the industry. Hypothesis 4 (H4) states that a companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s RD intensity will show no significant change following the event of acquisition within this industry. Here, an individual firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s spending rate measured as RD intensity is examined using the three (3) year average over the period 1998, 1999, 2000 and measured against the dummy variable of whether or not an acquisition occurred during the decade. The p value of 0.041 suggests an acceptable level significance, but comes from a distribution showing high kurtosis and the R2 value is lower at 0.028. Since targeting by specific industry is found to be significant, many studies and conclusions fro literature will benefit from this new examination. These results reopen the question of acquisition value measurement and study. The explanatory value of this multivariate model using repeated measures employs an application that is somewhat unique and present findings that call for additional research. INTERPRETATION OF RESUTLS The interpretation of these findings for four hypotheses presented is divergent from the body of previous studies which found no financial gain to the acquiring company. This empirical data analysis explored the link between acquisition activity and company profitability and longevity using the semiconductor industry as the initial testing grounds for this approach and methodology. Several potential relationship and interactions are examined including company size, calendar year, years before and after acquisition, longevity and relationship to the level of RD intensity. The use of dummy variables for company size and for whether an acquisition occurred or not improved the clarity for this research encompassing the semiconductor industry and its high velocity, high technology environment. The unique strength of this study arises from analyzing only one industry. The design of the study started with analyzing the driving forces for this industry in order to choose the most applicable dependent variable and independent variable. The selection was viewed as very important since the finding of financial gain from acquisitions has defied normal measures used in other research. The weakness of relying on a measure such as number of patents, as a measure of acquisitions success or innovation acceleration is that for semiconductors, some of the most vital knowledge is not patented, but held as trade secret and embodied in individual and organizational know-how. By comprehending the unique aspects of this industry and hypothesizing the possible impact and à ¢Ã¢â€š ¬Ã…“ripple-effectà ¢Ã¢â€š ¬? (from acquisition to innovation to new product to profitability), empirical focus was directed at profitability. By looking at GPM prior to and post acquisition, some of the elements of management and organization strengths or weaknesses can be noted in further analysis. If a company is managed poorly before completing an acquisition, this situation is anticipated to be reflected in the profit numbers and would be expected to experience less than optimal improvements post- acquisition. There are many ways that an organization can manifest strength and it can change over time. Managementà ¢Ã¢â€š ¬Ã¢â€ž ¢s decisions impact whether an acquisition is done, with whom and when. By looking at the whole industry, this study sought to minimize the managerial issue and was looking for a general relationship. This was reflected in finding positive significance for both large and small companies, over time in a fairly large sampling of corporations. Nonetheless, knowledge can be further gained through research to look at the degree of success and the contributing factors as the next step. Because this is a complex situation in the real world with dynamic factors, it could be attempted to assign the results to random chance or a confounding factor. However, the positive, significant results are consistent and repeated. Since an entire industry was used over a period of ten years, it is difficult to expect that a confounding variable could have consistently impacted this many companies over this period of time. The argument could be offered that these positive results were occurring because the semiconductor industry was in a growth cycle. Although this industry id definitely a cyclical one, the trends that were discovered directed tied to the independent variables of size and acquisition event in this study. This period was chosen because of the positive cycle stage for its stability, the absence of overriding events and the richness of acquisition activity yielded available data. It should also be noted that not all companies demonstrated the same results, regardless of phase, and positive results were found regardless of company size or longevity.

A Summary On The Children Cheetah - 10031 Words

Page semi-protected Cheetah From Wikipedia, the free encyclopedia This article is about the animal. For other uses, see Cheetah (disambiguation). Not to be confused with Leopard. Cheetah[1] Temporal range: Late Pliocene to Recent Cheetah Kruger.jpg A South African cheetah (A. jubatus jubatus) Conservation status Vulnerable (IUCN 3.1)[2] Scientific classification Kingdom: Animalia Phylum: Chordata Class: Mammalia Order: Carnivora Family: Felidae Genus: Acinonyx Species: A. jubatus Binomial name Acinonyx jubatus (Schreber, 1775) Subspecies A. j. jubatus A. j. raineyii A. j. soemmeringii A. j. hecki A. j. venaticus Cheetah range - 2.png The range of the cheetah The cheetah (Acinonyx jubatus) is a large feline (family Felidae, subfamily Felinae) inhabiting most of Africa and parts of Iran. It is the only extant member of the genus Acinonyx. The cheetah can run faster than any other land animal— as fast as 110 to 120 km/h (68 to 75 mph)[3][4][5][6][7][8] in short bursts covering distances up to 500 m (1,600 ft), and has the ability to accelerate from 0 to 96 km/h (60 mph) in three seconds.[9] The cheetah is a unique felid, with its closest living relatives being the puma and jaguarundi of the Americas. This cat is notable for modifications in the species paws, being one of the few felids with only semi-retractable claws.[10] Its main hunting strategy is to trip swift prey such as various antelope species and hares with their dewclaw. Almost every facet of the cheetah sShow MoreRelatedEssay on Zoos and Animal Rights1063 Words   |  5 Pageszoos deprived animals from satisfying their most basic needs. They urge not to patronized zoos and claims that the money spent on ticket purchases pays for animals to be imprisoned and traded, not rescued and rehabilitated. 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System Parameter Identification Elsevier

Questions: 1. Offer an example, real or imaginary, of firms in each of the following three situations. Thoroughly explain your examples with numbers.1a The firm created Added Value by increasing Customer Willingness to Pay1b The firm created Added Value by reducing Supplier Opportunity Cost1c The firm increased Customer Willingness to Pay, but failed to create Added Value.2. How can a firm that finds itself on the losing side of network effects survive? Requires one paragraph. 3. Explain why it is important for managers at all levels to be involved with decisions regarding the use and implementation of information system. Include discussion regarding what happens when they are not involved. Provide examples to support your statements. Requires a minimum of two paragraphs.4. What is the difference between classic information goods and information-intensive goods? Requires first defining both classic information and information intensive and then describing the differences please provide examples.5. The fact that information has had to rely on a physical carrier limits its ability to behave accordingly to its inherent characteristics and created a trade-off between richness and reach. Please explain this Richness and Reach Trade-off. Requires a minimum of two paragraphs.6. What is the difference between Business and Systems integration? Define Business Integration and define Systems Integration and then explain the difference with examples.7. Explain the ch anges in recent years in society, especially with regard to in technology usage, as it relates to the steady increase in; available computing power, available storage capacity, and improved networking technology. Include examples of both what has happened and what these trends suggest for the future.8. What is required for the successful design and implementation of an Information System? Requires two paragraphs.9. What are some key implications that stem from the notion of systemic effects and the fact that Information Systems exist in an organizational context? Requires two paragraphs.10. Please draw the socio-technical system diagram to show the components of information systems and the interaction among the components, and define a third-order information systems and organizational change?11. Imagine the following scenario: You manage a table restaurant in your town. You have been asked to implement wireless table ordering using portable wireless devices. This is clearly a situa tion where you need to design an Information System. Use the framework we have introduced in class to identify the most important components that will make up such Information System (be specific to the example of the restaurant).12.What are the three levels in the hierarchical organizational perspective? Identify the three levels and identify an information system that would assist with decisions and the work processes at the level, please include the reason you chose the information system.13.How does the process perspective help solve the problems associated with the hierarchical and functional perspectives? Describe the three perspectives and then answer the question.14.List and describe two advantages of Open Source Applications. 15.List and describe the three principal characteristics of Enterprise Systems. Answers: 1a. The consumers are willing to pay to the industry that has been produced or created of any shape or kind. For instance, making a cake involves supplier opportunity cost of $11 and firm cost is around $12 and the company fix price of cake of $18. Therefore, customers would will to pay $20. Therefore, value would be created of $9 in transformation process. 1b. Decreasing supplier opportunity costs would help in incentive creation for suppliers in order to supply the required resources for few amount. For example, increasing the production of paper by 30% would decrease the supplier opportunity costs by 15%. 1c. For example, the firm would be earning zero value added if the competitors charges less price on product and providing other beneficial such as gifts, coupons, etc. 2. The firm can be on the losing side if the products are made less valuable by the users. The people can make use of particular products more often which makes difficult for the firm to survive with the products as it leads to congestion. For example, if large numbers of users make use of internet then it can affect internet speed and utility of the users would decrease and will directly impact on service provider (Chen, 2013). 3. The role of managers is effective in the process of information system as they can provide strong guidance that may be related to network security and would be effective in coordinating entire technology operations. Moreover, they would be possessing required skills and experience regarding information system implementation. For example, if managers are not included then the management would find difficult in installing system and ensuring security of the system. 4. Classic Information good is that good that is valued for the message that it holds and product is digitized. For example, a book having short stories, pieces of music in CD, etc. Information intensive goods are related to information for developing product and services and making it available in the market. For example, book retail firm, telephone, etc (Nakahara and Sasaki, 2013). 5. Richness is comprised of the information that is reliable, secure, bandwidth or level of information, information customization to a sole buyer and interaction between seller and buyer. Therefore, rich information is developed which can be used for making strong decision. Further, reach trade-off relates with the people that take effective participation in exchanging or sharing information gained from richness. 6. Business integration is employed in order to make appropriate sync of information technology and objectives and cultures of business. System integration is a process that helps in combining the component subsystems into single systems so that business process can be streamlined. 7. The usage of technology has increased at tremendous pace. The people have started making more use of computer for transferring online message through e-mails and many industries install tracking system for effective management. For example, one person can store all their details in the computer with highest security. Moreover, the use of technology will used at higher rate in coming future (VojtaÃÅ' sÃÅ'Å’, 2013). 8. The information system expert is necessary for design and implementation of system. They can provide valuable information about systems pros and cons. On the other hand, the firm may require feasible hardware and software for the development of system. 9. The key implication is that systemic effects are involved in making interaction of information technology with other important components. Moreover, if changes are made in the component then it can have affect or impact all others. The information system is involved in organization in the form of computer system or any other monitoring device (Wang, 2013). 10. The third-order is effective in enhancing the process of the business by implementing information system in different departments. Therefore, it brings positive change in the organization performance. 11. In mobile application, the element will be users, designers and managers for developing feasible and useable app. In database, the elements will be technical platform, development tools and process system whereas in wireless table ordering, the elements would be order deliverables, workflow and communication with the users. 12. The three levels are corporate level strategies, business level strategies and functional level strategies. The directional IS would be feasible for first level, production monitoring system for second level and operation management system would be useful for the third level. These system would help the organization is gaining better productivity and higher performance. 13. The process perspective would be useful in combining the key process and activities of the company so that higher value can be provided to the consumers. The three perspectives are strategic improvement, process extension and market extension. 14. The application is secure as it can be accessible by everyone. Moreover, people can fix the bugs whenever they acknowledge one. Furthermore, quality will be improved and higher benefit would be received from technology in real time (Nakahara and Sasaki, 2013). 15. The three characteristics of Enterprise systems are: Integration: The data can be integrated and can be transferred with highest security. Adaptability: The member of an organization would develop capability to follow the norms and rule and be flexible to organizational change. Best practices: Enterprise system would help in ensuring best practice with the industry and ethical behavior among employees (Nakahara and Sasaki, 2013). References Chen, B. (2013).System parameter identification. London, UK: Elsevier. Nakahara, M. and Sasaki, Y. (2013).Quantum information and quantum computing. Singapore: World Scientific. VojtaÃÅ' sÃÅ'Å’, P. (2013).Information modelling and knowledge bases XXIV. Amsterdam: IOS Press. WANG, F. (2013). WMO Information System: Beijing Global Information System Center.Bulletin of the American Meteorological Society, p.130121120822004.

Supply Chain Risk Management

Introduction Supply chain plays significant roles in the domestic and the global economy. Each passing day, business processes, and operating environment are increasingly becoming complex. They hence require attention. This requires an effective supply chain that is able to respond efficiently to disruptions from unexpected events.Advertising We will write a custom report sample on Supply Chain Risk Management specifically for you for only $16.05 $11/page Learn More Supply chain needs to be streamlined to be more responsive to disruptions from the external environment. This calls for an efficient supply chain risk management. There are many risk management tools that can be utilized in supply chain management to reduce the impact of disruptions in the supply chain. This paper discusses the risks that are inherent in supply chain. In addition, it provides varied definitions of risk, supply chain management, and supply chain risk management by different au thors. Furthermore, it discusses the importance of supply chain management. Risk analysis models are discussed with reference to five articles by different authors. However, the report is constrained by lack of sufficient time in the preparation and submission, as well as the human resource factors. Reviews of books and Literature Supply Chain Risk The supply chain is vulnerable to risks of different levels. There are varieties of definitions of the term â€Å"risk†. A risk is an uncertainty with regard to future events that distort a functionality of business operations (Mun, 2004). Manuj and Mentzer (2008) define risk as unpredictable disruptions or breakdowns to the initial objective and projections. Lastly, risk can be defined as uncertainty with regard to events that compromise expected outcomes (Pryke, 2009). Singh, Mishra, Jain, and Khurana (2012), define supply chain risk as a potential deviation from the planned objectives that cause additional costs on value added a ctivities, at different stages of the supply chain. On the other hand, Wagner and Bode (2008), describe risk as a loss or a damage to supply chain that is caused by disruption of supply chain activities. Risk can also be defined as an organizational, environmental, or a supply chain related variable that is not easy to predict with certainty. Therefore, it affects the outcomes of supply chain activities (Faisal, Banwet, Shankar, 2006). Supply chain risks are classified as internal, or external. The Internal risks arise from improper coordination of supply chain operational activities. These risks include production, distribution, supplies, and demand risks. On the other hand, external risks are factors that occur due to the interaction of the supply chain with the external environment. They include natural disaster risks, exchange rate risks, terrorist attacks, and regulatory risks (Singh, Mishra, Jain Khurana, 2012; Lin Zhou, 2011).Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More These risks are inevitable in supply chains, and hence the high need to manage them. Risks damage and disrupt the efficient performance of supply chains. They can be managed through effective supply chain management strategies (Singh, Mishra, Jain Khurana, 2012; Lin Zhou, 2011). More so, supply chain risk analysis is also critical for the internal and external management of risks that are inherent in this field. Supply Chain Management Supply Chain Management (SCM) has been addressed widely in the supply chain literature. The term was first coined to differentiate it from logistics management. SCM can be defined as an efficient integration and coordination of supply chain activities with an objective of satisfying the end user (Faisal, Banwet, Shankar, 2006). Mentzer et al. (2001) define SCM as a systematic and strategic coordination of business operations across business functions wi th an objective of enhancing long-term efficiency of supply chains. On the other hand, Hugos (2011) defines SCM as the coordination of key chain activities such as location, production, inventory, and transportation among other activities in supply chains in order to produce the best mix that is efficient and responsive to markets being served by a company. SCM primary role is to facilitate quick movement of products and services to the end user. SCM creates a flexible and agile organization that supports distribution networks by allowing quick changeovers in the supply chain (Hugos, 2011). In addition, SCM is important in quantifying the bottom-line impacts of supply chain activities, hence enhancing cost controls. At the same time, SCM enhances company’s competitiveness in the market through eliminations of supply chain bottlenecks. It also helps in the achievement of operational efficiencies and meeting the needs. It enables companies to achieve their objectives (Hugos, 20 11). SCM is a critical tool for businesses. It helps businesses to boost their customer services. This is achieved through a timely delivery of products in different locations. Furthermore, SCM helps business to streamline supply chain activities and take necessary measures against unexpected occurrences. It also enables businesses to improve their bottom-line through increased efficiencies. Furthermore, the supply chain management enables business to build a sustainable supply chain, and hence enhance improvements in the social and environmental responsibility (Hugos, 2011).Advertising We will write a custom report sample on Supply Chain Risk Management specifically for you for only $16.05 $11/page Learn More Supply Chain Risk Management Supply chains are susceptible to risks due to the complex activities and the environment in which businesses operate. Supply Chain Risk Management (SCRM) is critical in combating supply chain risks (Wu et al. 2013). SC RM is defined as the application of risk management process tools in collaboration with partners in the supply chain to mitigate risks and uncertainties that arise as a result of logistics related activities (Norrman Lindroth, 2002). Olson and Wu (2008) view SCRM as a coordination and collaboration process that identify, assess, avoid, and mitigate risks that are inherent in supply chain. SCRMP can also be defined as a management arrangement that addresses the likelihood of risk occurrence, its consequences, and the forces that drive particular sequence of events, as well as how best the forces can be managed to minimize the consequences and improve the positive outcomes (Ritchie Brindley, 2007). Petroleum Supply Chain risk management model that was developed by Fernandes, Barbosa-Pà ³voa, and Relvas (2010) give a good example of SCRM. Supply Chain Risk Analysis There are various theories and models that are used to analyze supply chain risks. These models are used to identify, a nalyse, and mitigate risks in different industries. For instance, Christopher, and Peck (2004) research focused on the development of a managerial agenda that would enable identification and management of risks in the supply chain. It utilized chain resilience model in the analysis of risks in different UK industries. Their analysis provides an end-to-end perspective of product flow from raw material sources to customer delivery. Their research sought to answer the following questions; how best managerial agenda can identify and manage supply chain risks, and how best resilience of supply chain can be improved (Christopher Peck, 2004). They model risk decision-making across business functions in and outside of the organization (Christopher Peck, 2004). Their study is justified by an apparent acknowledgment that organizations in the UK are yet to fully recognize supply chain risks and utilize lean systems for supply chain efficiency. Khan, Christopher, and Burnes (2008), provide an analysis of the impact of the product design on the SCRM, in a more complex global context case study. Their research constructs a framework that incorporates product design in supply chain risk management. This framework is a creative platform that is capable of managing supply chain risks (Khan, Christopher, Burnes, 2008).Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Its research questions are the roles, which the product design can play in mitigation of risks, and how it enhances supply chain agility in clothing and textile industry in the UK. The Risk Matrix and the Risk Register Models are used by researchers in the analysis of Marks and Spencer risk management. The justification of the research is the recognition of the product design as integral to the competitiveness of a supply chain that is achieved through an effective identification and mitigation of risks (Khan, Christopher, Burnes, 2008). Chopra and Sodhi (2004) provide an analysis of supply chain risks as a result of natural disasters. They provide an overview of how companies can be prepared for natural disaster eventualities. They hold an opinion that effective management of natural disaster risks calls for managers to understand the interconnectedness of supply chain risks and focus design of strategies for effective risk reduction and mitigation strategies. The authors answer t he question how best companies can be prepared to deal with risks associated with natural disasters, fires, labour strikes, and terrorism that is likely to disrupt supply chains. They utilize Disaster Management Model and Framework (DMMF) to analyze and mitigate risks. The justification of the study is the need of strengthening natural disasters, fire, and labour strikes preparedness so as to reduce its impacts on the supply chain. Vosooghi, Fazli, and Mavi (2012) provide an analysis of risk involved in the crude oil supply chain. They acknowledge that crude oil supply chain is complex and vulnerable to a variety of risks. They identify environmental and regulatory risk to be rampant to the crude oil supply chain. The research question of this paper is how best oil supply chain managers can understand different risks and how effectively they mitigate them. Fuzzy Analytical Hierarch Process (FAHP) model is utilized in the analysis of the risks involved in the crude oil supply chain ( Vosooghi, Fazli, Mavi, 2012). The justification of this research is making a contribution towards management and mitigation of risks in the crude oil supply chain that is more vulnerable to risks. The research paper by Sinha, Whitman, and Malzahn (2004) provide a descriptive methodology designed to mitigate risks in an aerospace supply chain. This paper answers the question of how best risks in an interconnected supply chain can be identified, analyzed, and mitigated in the aerospace industry. The authors utilize Supply Chain Operations Reference model (SCOR) in the analysis of the risks inherent in the aerospace industry. The justification this research was to provide an efficient methodology capable of mitigating supply chain risks in a competitive industry (Sinha, Whitman, Malzahn, 2004). Conclusion Supply chain management and supply chain risk management continue to draw attention of companies and other practitioners. This is due to its role in the performance of the companies and the economy. With globalization increasing competition and business functions becoming more complex, the supply chain is becoming more vulnerable to unexpected disruption. Effective reduction of the impacts of the dynamic environment on supply chain call for efficient supply chain management and supply chain risk management. There are different risk management tools that organizations should use to tailor their risk management strategies towards effective mitigation of risk. In doing so, supply chain would be more efficient and responsive to environmental disruption, and hence enhances business competitiveness. List of References Chopra, S Sodhi, MS 2004, â€Å"Managing risk to avoid supply-chain breakdown,† MIT Sloan Management Review, vol. 46, no. 1, pp. 52-61. Christopher, M Peck, H 2004, â€Å"Building the resilient supply chain,† International Journal of Logistics Management, vol. 15, no. 2, pp. 1-13. Faisal, MN, Banwet, DK Shankar, R 2006, â€Å"Supply c hain risk mitigation: modelling the enablers,† Business Process Management Journal, vol. 12, no. 4, pp. 535-552. Fernandes, LJ, Barbosa-Pà ³voa, AP Relvas, S 2010, â€Å"Risk management framework for the petroleum supply chain†, Computer Aided Chemical Engineering, vol. 28, pp. 157-162. Hugos, MH 2011, Essentials of supply chain management. Hoboken, N.J: Wiley. Khan, O, Christopher, M Burnes, B 2008, â€Å"The impact of product design on supply chain risk: a case study,† International Journal of Physical Distribution Logistics Management, vol. 38, no. 5, pp. 412-432. Lin, Y Zhou, L 2011, â€Å"The impacts of product design changes on supply chain risk: a case study,† International Journal of Physical Distribution Logistics Management, vol. 41, no. 2, 162-186. Manuj, I Mentzer, JT 2008, â€Å"Global supply chain risk management strategies,† International Journal of Physical Distribution Logistics Management, vol. 38, no. 3, pp. 192-223. Mentz er, JT, DeWitt, W, Keebler, JS, Min, S, Nix, NW, Smith, CD, Zacharia, ZG 2001, Defining supply chain management, Journal of Business logistics, vol. 22, no. 2, pp. 1-25. Mun, J 2004, Applied risk analysis: Moving beyond uncertainty in business, Wiley, Hoboken, N.J. Norrman, A Lindroth, R 2002, March, Supply chain risk management: purchasers’ vs planners’ views on sharing capacity investment risks in the telecom industry, In 11th International IPSERA conference, Enschede, The Netherlands. Olson, DL Wu, D 2008, â€Å"Supply Chain Risk Management,† In New Frontiers in Enterprise Risk Management, pp. 57-67, Springer Berlin Heidelberg. Pryke, S 2009, Construction supply chain management: Concepts and case studies, Wiley-Blackwell, Chichester, UK. Ritchie, B Brindley, C 2007, â€Å"Supply chain risk management and performance: a guiding framework for future development,† International Journal of Operations Production Management, vol. 27, no.3, pp. 303-322. Singh, A, Mishra, P, Jain, R Khurana, M 2012, ‘Design of global supply chain network with operational risks’, International Journal Of Advanced Manufacturing Technology, 60, 1-4, pp. 273-290. Sinha, PR, Whitman, LE Malzahn, D 2004, â€Å"Methodology to mitigate supplier risk in an aerospace supply chain,† Supply Chain Management: An International Journal, vol. 9, no. 2, pp. 154-168. Vosooghi, MA, Fazli, S Mavi, RK 2012, â€Å"Crude Oil Supply Chain Risk Management with Fuzzy Analytic Hierarchy Process,† American Journal of Scientific Research, No. 46, pp. 34-42. Wagner, SM Bode, C 2008, â€Å"An empirical examination of supply chain performance along several dimensions of risk†, Journal of Business Logistics, vol. 29 no. 1, pp. 307-325. Wu, T, Huang, S, Blackhurst, J, Zhang, X, Wang, S 2013, ‘Supply Chain Risk Management: An Agent-Based Simulation to Study the Impact of Retail Stockouts’, IEEE Transactions On Engineering Managemen t, vol. 60, no. 4, pp. 676-686. This report on Supply Chain Risk Management was written and submitted by user Damion Rivera to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here. Supply Chain Risk Management Introduction Risk is one of the concepts that continuously attract the attention of business administrators and scholars. This paper is aimed at discussing this notion within the context of supply chain management. In particular, it is necessary to examine the theories and models that can be used to manage risks and increase organizational resilience to internal and external threats. This report will consist of several sections.Advertising We will write a custom report sample on Supply Chain Risk Management specifically for you for only $16.05 $11/page Learn More First, one should provide the definitions of main concepts such as internal and external risk. Furthermore, this paper will include a review of research articles that can be used to identify different theoretical frameworks or models of supply chain risk management. Overall, one can say that the current research is oriented toward two aspects of risks, namely probability and impact on the sustai nability. It should be noted that existing approaches to supply chain risk management cannot be universally applied. As a rule, they were designed to respond to the problems faced by certain types of companies or industries. This is one of the limitations that should be considered. Definitions of the main concepts Overall, the notion of risk can be interpreted as the possibility of loss, hazard, or any other undesirable event. However, researchers, who examine this term from an organizational perspective, describe it as a â€Å"variation in the distribution of possible outcomes, their likelihoods, and their subjective values† (Christopher Peck 2004, p. 4). Therefore, risk is closely connected with the deviation from the established norm. It should be noted that there are two types of risks, namely internal and external. Internal risks take their origins in the inside operations of an organization, in particular, the decisions of the management, structure, RD policies, planni ng, and so forth (Lin Zhou 2011, p. 164). Each of these aspects lies within the scope of managerial responsibilities. This is one of the details that should be considered. In turn, external risks can be attributed to the factors cannot be controlled or eliminated by the management. For example, one can speak about such threats as natural disasters, political upheavals, or technological catastrophes that can produce detrimental effects on a company. Additionally, it is important to examine such a concept as supply chain management (SCM). Certainly, one can offer several definitions of this term. Yet, researchers usually describe it as the way to control the flow of goods from the suppliers of raw materials to the end users of a product (Sinha, Whitman Malzahn 2004, p. 154). This term is important for understanding the questions that will be discussed.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Le arn More Overall, supply chain risk management (SCRM) can be described as a set of activities that are aimed at identifying various risks and minimizing their probability or influence on an organization. To a great extent, it is a set of activities that are supposed to make a company less vulnerable or susceptible to various threats. For example, the development of a contingency plan is one of the activities included in SCRM. This plan is supposed to give step-by-step instructions that should be carried out provided that a certain event takes place (Christopher Peck 2004). In particular, many companies develop contingency plans to reduce the impact of disruptions. This is one of the possible problems that should be addressed. There are different types of supply chain risks, for instance, one can mention delays, disruptions, forecast risks, procurement risk, the failure to collect receivables, and many other threats (Chopra Sodhi 2004, p. 54). These risks can be attributed to be internal and external factors. These are the main details that can be identified. Literature review It is possible to single out various sources that can throw light on different theories and models that can be helpful for identifying, assessing, or mitigating supply chain risks. On the whole, one can argue that various authors do not always explicitly identify a theory or model that they follow while conducting their research. Yet, it is possible to understand what kind of frameworks they rely on. For example, it is possible to discuss the article written by Martin Christopher and Helen Peck (2004) who discuss the methods of constructing a resilient supply chain. The authors focus on the strategies adopted in various industries such as food retailing, automotive manufacturing, food packaging, and so forth (Christopher Peck 2004, p. 2).The scholars attempt to answer several research questions. First, they try to determine how organizations can reduce the impact of external threats on their business processes (Christopher Peck 2004, p. 1). Secondly, researchers want to reduce the costs associated with SCRM. These scholars attempt to develop a model of a resilient supply chain. To a great extent, it is based on the contingency theory according to which the management should concentrate on the environment in which the business operates. This theoretical framework implies that one cannot fully eliminate the probability of a certain risk. However, business administrators can develop strategies that can help a company withstand the influence of these environmental factors. This approach can be distinguished because it can enable an organization to remain sustainable at the time of crisis.Advertising We will write a custom report sample on Supply Chain Risk Management specifically for you for only $16.05 $11/page Learn More In their article, Omera Khan and Marting Christopher (2008) discuss the relevance of product design to SCRM. They study this question within the context of such industries as fashion retail and clothing manufacturing (Khan Christopher 2008, p. 412). These authors show how companies can improve their SCRM by viewing design as a component of supply chain. Moreover, they demonstrate how this partnership can be established. These are the main questions that these researchers examine. One of their arguments is that designers and suppliers should closely interact with one another in order to reduce the probability of supply chain risks (Khan Christopher 2008, p. 418). This study illustrates the application of the stakeholder theory which is used for the management of risks. According to this approach, the stakeholders, who may have various interests, can represent the supply chain. More importantly, different problems can be addressed or avoided if various participants are able to cooperate with one another in order to resolve conflicts and misunderstandings. This is the main principles that shoul d be followed. This framework should be disregarded because in many cases, supply chain problems can be attributed to miscommunication or lack of coordination. It can be a valuable tool for reducing the probability of risk. The importance of design is examined Yong Lin and Li Zhou (2011). In particular, these scholars explore the impact of changes in design on various supply chain risks (Lin Zhou, 2011, p. 162). They look at the way in which this issue manifests itself in the special-purpose vehicle industry. There are several questions which these researchers discuss. First, they try to determine whether a certain risks can occur due to design changes requested by clients (Lin Zhou, 2011, p. 164). Secondly, they focus on the impact of such requests on the functioning of the supply chain. Overall, their findings suggest that such changes in design often lead to external and internal supply chain risks that can be related to production process or delivery of goods to clients. This study is also based on the stakeholder theory of risk. Additionally, it is possible to review the article written by Sunil Chopra and ManMohan Sodhi (2004) who study the ways of avoiding supply-chain breakdowns. These scholars discuss a variety of supply chain risks to which a business can be exposed. Overall, they do not test a certain hypothesis or answer research questions. Instead, they survey a set of methods that can mitigate various risks. One can say these scholars present a model of a resilient supply chain that is able to withstand the impact of environmental factors. Such an approach is useful for reducing the impact or risks.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More One can also speak about the work of Pankai Sinha, Larry Whitman, and Don Malzahn (2004). These researchers strive to develop techniques for the mitigation of risks that can affect the supply chain in the aerospace industry. They scholars do not discuss a specific research question or a hypothesis. They are more interested in identifying techniques which enable the managers to reduce the probability and impact of risks. This article illustrates the so-called IDEFO model of managing risk (Sinha, Whitman, Malzahn 2004, p. 166). The model is premised on the idea that supply chain managers should be ready for the worst-case scenarios. By relying on stress testing, they can identify the strengths and weaknesses of the organization. Furthermore, these professionals should adopt the policy of continuous improvement (Sinha, Whitman, Malzahn 2004, p. 166). This model can be singled out because it is a useful technique for evaluating the resilience of the supply chain. The article written b y Steen Christiansen and Jesper Jensen (2009) is also worth attention because it illustrates the application of such a model as the fishbone diagram as a method of improving the work of the supply chain. This study is aimed at discussing packaging performance qualification (Christiansen Jensen 2009, p. 77). In particular, the scholars want to determine â€Å"the minimum performance qualification batch size for assembly and packaging processes† (Christiansen Jensen 2009, p. 77). These processes can be viewed as important elements of the supply chain. The writers show how a fishbone diagram can be used to identify the causes of various problems or variations in the functioning of the supply chain (Christiansen Jensen 2009, p. 83). This model is helpful for understanding the pinpointing the weaknesses in the supply chain. This is why it should not be overlooked. This use of this model is also described in the article by Angela Tidwell and Scott Sutterfield (2012). The main go al of their study is to discuss the selection of suppliers with the help of such a tool as Quality Function Deployment (2012, p. 284). They researchers focus on the needs of businesses that are engaged in toothpaste packaging (Tidwell Sutterfield 2012, p. 284). The main task is to exemplify the common challenges that companies face when choosing among various suppliers. These authors also illustrate the application of the fishbone diagram. Apart from that, it is possible to look at the article written by Craig Carter and Dale Rogers (2008). To some degree, it can throw light on the use of resource dependence theory. These authors carry out a survey of scholarly articles illustrating theoretical perspectives on the causes of supply chain risks and ways of mitigating them. In this way, they attempt to single out the most relevant approaches to SCRM. For instance, large manufacturers prefer vertical integration. In other words, they prefer to take complete control of their suppliers ( Carter Rogers 2008, p. 272). This strategy is consistent with the principles of resource dependence theory according to which organizations strive to maximize their control of resources such as labor, technologies or raw materials (Carter Rogers 2008). In turn, vertical integration of the supply chain is a way of reducing the probability of risk. Overall, this perspective is useful for explaining the long-term strategies of large manufacturers. Furthermore, one can look the article written by Anthony Paulrai and Chen Injaazz (2011). These authors discuss such a phenomenon as environmental uncertainty and its impact on SCM of various businesses. They want to show how organizations try to become more self-sufficient and reduce the threats to its supply chain. This is the main research question that they focus on. In their opinion, the main trend in SCRM is the integration of supply partners (Paulrai Injaazz 2011, p. 37). This study is also based on the use of resource dependence th eory. The peculiarities of vertical integration are examined in the study carried out by Wei Guan and Jacob (2012). These researchers examine the use of this approach by timber manufacturers (Guan Rehme 2012). The scholars intend to understand the factors that prompt various businesses to adopt this approach. This is the main issue that they are interested in. Overall, timber manufacturers focus on vertical integration because it is critical for responding to the needs of clients (Guan Rehme 2012). In order to do it, they need to make sure that suppliers are effectively managed. So, this way of removing risks takes its origins in the resource dependency theory. These are the most important aspects that can be identified in these articles. Conclusion This analysis indicates that there are different models of supply chain risk management, and each of them has its strengths and weaknesses. First of all, one can say that some of the existing models and theories are mostly aimed at imp roving organizational capacity to respond to risks or threats. For instance, a contingency theory of risk implies that a company should be ready to respond to the changes in external environment. Therefore, their main purpose is to mitigate the impact of risks. In turn, other frameworks show how the probability of risks can be reduced. It seems that an organization should combine these approaches in order to become more effective. However, one should critically evaluate the applicability of different models and theories. Many of them have been tested only within the context of some specific industries or organizations. These are the main arguments that can be put forward. References Carter, C. Rogers, D 2008, ‘A framework of sustainable supply chain management: moving toward new theory’, International Journal of Physical Distribution Logistics Management, vol. 38, no. 5, pp. 360-387. Chopra, S Sodhi, M 2004, ‘Managing Risk To Avoid Supply-Chain Breakdownâ€℠¢, MIT Sloan Management Review, vol. 46, no. 1, pp. 53-61. Christiansen, S.H. Jensen, J.B.T. 2009, â€Å"Packaging Performance Qualification-A Risk-Based Approach†, Journal of Validation Technology, vol. 15, no. 2, pp. 77-85. Christopher, M Peck, H 2004, ‘Building the resilient supply chain’, International Journal of Logistics Management, vol. 15, no. 2, pp. 1-13. Guan, W. Rehme, J. 2012, ‘Vertical integration in supply chains: driving forces and consequences for a manufacturer’s downstream integration’, Supply Chain Management, vol. 17, no. 2, pp. 187-201. Khan, O Kristopher, M 2008, ‘The impact of product design on supply chain risk: a case study’, International Journal of Physical Distribution Logistics Management, vol. 38, no. 5, pp. 412-432. Lin, Y Zhou, L 2011, ‘The impacts of product design changes on supply chain risk: a case study’, International Journal of Physical Distribution Logistics Management, v ol. 41, no. 2, pp. 162-186. Paulraj, A. Chen, I.J. 2007, â€Å"Environmental Uncertainty and Strategic Supply Management: A Resource Dependence Perspective and Performance Implications†, Journal of Supply Chain Management, vol. 43, no. 3, pp. 29-42. Sinha, P., Whitman, L., Malzahn, D 2004, ‘Methodology to mitigate supplier risk in an aerospace supply chain’, Supply Chain Management: An International Journal, vol. 9, no. 2, pp. 154-168. Tidwell, A. Sutterfield, S 2012, â€Å"Supplier selection using QFD: a consumer products case study†, The International Journal of Quality Reliability Management, vol. 29, no. 3, pp. 284-294. This report on Supply Chain Risk Management was written and submitted by user Jeramiah Q. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here. Supply Chain Risk Management